Why is the Companies Act 2006 and Articles of Association so important?
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A company’s Articles of Association, together with its Memorandum, form the basis of the company’s constitution. They’re commonly referred to as the ’internal rule book’ of the company. The articles are chosen by its members and are legally binding on the company and its members (shareholders). A company’s articles are subject to the Companies Act 2006(Opens new window) and can’t contain rules that would cause the company or its directors to operate outside the law. A company incorporated on or after 1 October 2009 can choose to adopt:
- model articles in full;
- model articles with additional or amended provisions, or
- bespoke articles.
When a shareholder dies, their shares will form part of their estate and ultimately pass to their heirs under the terms of their will, or the laws of intestacy where they haven’t made one. A company’s articles are also likely to contain rules about the transferring of shares.