When should you ditch the Model Articles?

For a company to become incorporated within the UK, it must have a document called articles of association. These are the governing rules of the company and regulate how it shall be run. When incorporating, most new companies will adopt the “Model” Articles of Association provided by Companies House, although specifically tailored articles may also be adopted, known as “bespoke articles”. This short note will discuss why and when companies should decide to adopt their own bespoke articles and the advantages in doing so.

As said above, many new companies will adopt the Model Articles upon incorporation. This will typically be done for ease and cost. These articles provide the basic elements of corporate governance and therefore are useful in providing a good starting structure for the company. However, there are some key issues with them which include:

• They are unclear as to the quorum (minimum directors needed) requirements;
• They don’t necessarily provide for operating with a sole director and in fact, we now cannot register a company with model articles if you have a sole director;
• The conflict provisions are complicated and often require shareholder involvement;
• It can be difficult to remove a director (you need shareholders to do so);
• there are limitations around share transfers; and
• there are no additional protections which are now seen as standard for companies (drag along, tag along and exit arrangements).

When MBM Commercial incorporates a company on your behalf we typically use our own bespoke “basic” articles which cover the issues with board meetings and sole directors as standard. We can also incorporate with the additional rights above for a small additional fee. This allows the company to have greater flexibility around board structure and shareholding than it would typically have with the model articles.

Have you already incorporated your company with the Model Articles? Depending on the situation with the company, then now might be the time to change your articles. Adopting bespoke articles can not only address the company’s current commercial situation but also provides for greater flexibility for the future. Especially if any of the following events is on the horizon or has already happened:

• you have granted or are about to grant share options to staff or consultants;
• you have taken on or are about to take on a very small “friends and family” round of investment;
• you have taken on or are about to take on a cofounder; or
• you have or are shortly to have only one director but you incorporated with two.

If any of this has happened or likely to happen, then please do contact MBM Commercial to assist you with some new articles of association. We can discuss all of the arrangements you can have and work out what works best for you.