Why are a limited company’s articles of association important when it comes to business protection?
This information is for financial advisers only. It mustn’t be distributed to, or relied on by, customers.21 October 2016
A company’s articles of association 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.
For companies incorporated from 1 October 2009, the company’s articles are subject to the Companies Act 2006 and can’t contain rules that would cause the company or its directors to operate outside the law.
A company 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.
Before any business protection is considered, it is vital to check the company’s articles of association to ensure that any arrangement isn’t contrary to the articles.
This information is based on our understanding of taxation law and HMRC practice, at date of publication.