Model Articles of Association

For the most part, the company is run by the board of directors (not by the shareholders). In a start-up, the “founders” are typically both the initial shareholders and directors (perhaps in conjunction with any funding parties), and they are in charge of the day to day running of the company. But it is important to remember that a “founder” is not a legally recognised category. It is usually only in their capacity as directors that founders get involved in the management of the company. If a founder who is both a director and shareholder stops being a director, they remain a shareholder but typically lose most of their ‘day to day’ managerial powers.

The company's directors (collectively known as "the board" or “board of directors”) have broad powers to run the company (like make day to day decisions or enter into contracts), and they typically only require shareholders' approval if the Model Articles, the law (primarily the Companies Act 2006 (the “Companies Act”) or a separate shareholders agreement (via ‘reserved matters’) say so. For example, to declare a dividend or to sign a service contract with a director for a fixed term, including notice periods, of 2 years or longer.

See Model Article 3 for Director’s general authority.

The board’s power extends beyond just day-to-day management. For example, the directors can decide to offer benefits to employees or ex-employees (although not directors) if the business is sold or shut down. It is important to note however, that separately directors have a duty under the Companies Act to act in good faith to promote the success of the company, exercise independent judgment and reasonable care, skill and diligence (see Section 172 of the Companies Act – for duties generally see Section 171 to 177). These are important duties and directors should be competent in understanding what they mean.

See Model Article 51 for Provision for employees on cessation of business.

Although it is rare for the board to deviate too much from the standard procedures set out in the Model Articles, the directors are free to create their own additional rules about how they make decisions, provided it is within the framework set out in the Model Articles and they are acting in accordance with their duties under the Companies Act. 

See Model Article 16 for Directors’ discretion to make further rules.

The board can even set the pay for directors, both for serving as directors and for other board-approved services they may provide.

See Model Article 19 for Directors’ remuneration.  

The board can reimburse the directors for reasonable expenses they incur to attend meetings or otherwise perform their duties, like travel expenses, accommodation or training costs.

See Model Article 20 for Directors’ expenses.

Only a handful of decisions are typically taken by the shareholders in the operation of a company, and not all of them are set out in the Model Articles.

Shareholders (unless they are also directors) do not have an automatic right to inspect company records.

See Model Article 50 for No right to inspect accounts and other records. 

However, the Companies Act entitles shareholders to receive copies of the company's last annual accounts, strategic and directors’ reports and auditor's report. Note that not every company will have all of these documents: audit, for instance, is only compulsory for some companies, or when requested by shareholders holding at least 10% in the company.

The Model Articles also give the shareholders a “reserve power” to direct the board to do (or stop doing) something, by passing a so-called “special resolution” which requires 75% of shareholders’ votes to pass. 

See Model Article 4 for Shareholders’ reserve power. 

The board must comply with such directions, provided, of course, that they are consistent with the directors' duties to the company (per the duties required by the Companies Act mentioned above).

With great power comes great responsibility: avoiding conflicts of interest is only one of the directors’ duties. 

One of the directors’ duties is to avoid conflicts of interest. That is why directors cannot participate in the making of a company decision to engage in a transaction in which that director is interested, for example a contract with a person or company with whom the director is connected – unless the shareholders approve the conflict via a resolution, or one of the other exceptions apply. A director must always declare any potential conflicts to the board of directors. A full list of exceptions is set out in Model Article 14. Remember the 4 ”D”s of conflict of interest: declare, discuss, deal and document!

See Model Article 14 for Conflicts of interest.

Shareholders (also known as “members” of the company) of a private company limited by shares in England & Wales, are not typically personally responsible for the debts of the business even if it goes insolvent - provided that they have fully paid up their shares (and have not provided any personal guarantees to the company). Upon the incorporation of a private company limited by shares in England & Wales, the initial shares, allocated on incorporation to founders, are usually priced at the nominal value, so if the company incorporated with shares of £0.01 each, the founders only need to contribute the amount unpaid on the shares, i.e. 1 penny for each of their shares, to ensure their financial liability as shareholders is restricted. Note that the founders may still be liable for the company's debts in their capacity as directors, if, for example, directors continue to trade when they knew, or ought to have known, that there was no reasonable prospect of avoiding insolvent liquidation.

See Model Article 2 for Liability of members.

To transfer a share, it is not enough to sign a “stock transfer form”: there may be tax to pay, and the board has the last word. Watch this short video explaining who founders can sell their shares to.

When investors are investing in a company, new shares are not always issued, sometimes existing shares are transferred to those investors. Shares are usually transferred using a share transfer form known as J30, which is available on the GOV.UK website. If the shares being transferred are fully paid - as they should be - the transferor (the selling shareholder) alone would sign the form and hand it over to the transferee (the buying shareholder), and it is the transferee who presents the signed form to the HMRC and pays any stamp duty that might be due. There are a few exemptions from this requirement, such as transfers valued at £1,000 or less in total. In situations where the total value of the shares being transferred is valued at £1,000 or less, the transferee presents the signed J30, stamped or exempt from stamping, to the board for the registration of the transfer, and the legal ownership of the shares remains with the transferring shareholder until the board enters the transferee into the Members’ Register as the legal owner of the shares.
 
Directors have 1 month to either approve or refuse to register the transfer, but, as always, the board ought to exercise this right with due care and in line with their duties to the company. If they decide not to register the transfer, they will need to explain their reasons to the transferee. The directors might reject the transfer if, for example, the transfer is subject to stamp duty, but the stamp duty has not been paid, or the purported transfer has not been done in accordance with the company’s Articles of Association.

While there is no legal requirement to have a share purchase agreement in place, parties may choose to enter into a share purchase agreement to deal with the legal rights and obligations surrounding the transfer.

See Model Article 26 for Share transfers.

The person who inherits or otherwise receives the shares of a deceased shareholder (“the transmittee”) is the only person who the company will recognise as being entitled either (a) to be recorded as the holder of those shares, or (b) to direct the company to register the shares in another person’s name.

See Model Article 27 for Transmission of shares.

The company will enter the transmittee’s name in the Members’ Register only after the transmittee produces evidence of their right to the deceased member’s shares. It is also possible for the transmittee to have the shares registered in the name of another person whom they nominate, in which case the board will need the transmittee to execute a stock transfer form or another instrument of transfer.

See Model Article 28 for Exercise of transmittees’ rights.

Regardless of the medium in which the board makes a decision, the decision needs to be documented.

If directors approve a contract, or the company’s budget for the next year, they must keep a record of this decision for at least ten years. This requirement extends to decisions made via different means of communication, including messenger apps. The most common way to document board decisions made in a meeting is to produce a set of “minutes” of the meeting, which the chair alone signs after the minutes are circulated to all directors and they confirm the record is accurate. 

See Model Article 15 for Records of decisions to be kept.

The board has a lot of freedom in choosing the communication channels that work for them.

The board is free to choose an electronic medium to send documents, notices and other information to each other and to the shareholders. A director may also indicate their preferred mode of communication in relation to the documents addressed to them, and to help expedite decision-making the director can agree with the rest of the board to treat documents as received after a certain number of hours or days.
 
See Model Article 48 for Means of communication to be used.

You do not have to get a company seal.

The provisions in the Model Articles that mention the “common seal” do not mean you have to get one: very few companies have a physical company seal.

See Model Article 49 for Company seals.

A shareholder can waive their right to receive a dividend by notifying the company in writing. If they do, the would-be dividend amount remains with the company - it does not automatically get re-allocated to other shareholders unless the shareholders’ resolution declaring the dividend specifically provides for this. Dividend waivers can have tax consequences, so many shareholders choose to waive the right to waive pre-emptively, before the final dividend is declared by the shareholders (and before any interim dividend is paid by the board).  

See Model Article 35 for Waiver of distributions.

The company is not allowed to pay interest on a dividend unless there is a separate agreement (like a subscription agreement or shareholders’ agreement) that entitles the shareholder to interest payments.
 
See Model Article 32 for No interest on distributions.

A shareholder has 12 years to claim a dividend, but the company is allowed to use temporarily the funds for its own benefit, until the shareholder comes forward. For example, a shareholder, Alex, is entitled to a £500 dividend, but Alex’s contact details are out-of-date and the company is unable to reach Alex. The directors decide to invest the £500, and if Alex comes forward within 12 years, the company will find enough cash to pay the dividend. However, if 12 years pass without Alex coming forward, then Alex permanently loses the right to claim the dividend.

See Model Article 33 for Unclaimed distributions.

Instead of paying the profits out as dividends, the shareholders can allow the company to capitalise the profits.

With shareholder approval, instead of recommending a dividend, the board can turn profits into capital. Rather than giving shareholders cash directly, the company will allocate the capitalised amounts in the same proportion as a dividend would have been - and apply those amounts on the shareholders’ behalf to pay for new shares or debentures. 

For example, instead of each shareholder getting paid a £100 dividend, the shareholders may approve the issuance of new shares priced at £100 in aggregate, and the £100 will be subtracted from the profits and deemed to have been paid on each shareholder’s behalf to the company – without leaving the company’s bank account. 

If the company has preference shareholders and still owes declared but unpaid dividends to them, it will need to set aside (and not capitalise) profits sufficient to make that payment. 

See Model Article 36 for Authority to capitalise and appropriation of capitalised sums.

While the Cap Table typically includes information about issued shares as well as options and convertible securities, it is a commercial tool that is not regulated by law. Its primary purpose is to provide a clear overview of the company’s equity structure for internal management, investors, and potential acquirers. Separately, the legal register of the company’s issued shares is the “Members’ Register”, also known as the “Shareholders’ Register”: only those on the company’s Shareholders’ Register are considered shareholders: nominees are in, beneficial owners are out.

The company will only recognise as shareholders the persons who are recorded as the owners of its shares in the company’s Shareholders’ Register (also known as a Members’ Register), which most companies keep themselves in electronic or paper form. This may be maintained by a third party (such as a company secretary) and often a company may engage a third-party software provider to help manage it, but the principle remains the same in that the Register remains the definitive legal record.

For example, if the company receives investment from an investor syndicate, the nominee company will be the only shareholder for the company’s purposes. Remember that beneficial (ultimate) owners are still important, e.g. for the company’s Persons with Significant Control register - but beneficial owners are not shareholders.

See Model Article 23 for Company not bound by less than absolute interests.

Every time the company issues new shares (or records the new owner following a transfer of existing shares), the board needs to send a share certificate to the respective shareholder, at least one certificate for each distinct class of shares the shareholder holds. It is also possible for a shareholder to get several certificates for one class of shares: for example, for their Ordinary shares, if some of those Ordinary shares were issued at incorporation, some more in a later round and a few were transferred from another shareholder. It is good practice - and, indeed, expected by investors - that certificates are issued right away on the closing of a financing round (or when the transfer is registered), but the statutory deadline is 2 months.

There is no prescribed template to follow, but the certificate must state the shareholder’s name, the number and class of shares and the nominal value of the shares, and the certificate must also confirm the shares are fully paid. It is common for the shares to be numbered, and those numbers will also appear on the face of the certificate. 

Model Article 24 speaks of having “the company’s common seal” on each share certificate, but it is more common instead to have each share certificate signed by 2 directors, 1 director and the company secretary or 1 director whose signature is then certified by an independent witness.

See Model Article 24 for Share certificates.

The nominal value of a share is assigned to the share when the share class is created. When the company is first set up, founders tend to give themselves “Ordinary” shares, often priced at £1 or £0.01 per share. As the company grows, it might raise capital and offer new shares, maybe of the same Ordinary class, to new investors, but at a higher price. Any amount above the nominal value paid by the investor is called a “share premium”. For example, if a £1 Ordinary share is sold for £5, the extra £4 is the share premium. And the company must make sure it gets £5 in full before it issues the new shares. Shares cannot be issued at a discount (that is, for less than their nominal value).

See Model Article 21 for All shares to be fully paid up.

The company can issue new shares of an existing class and can also create an entirely new share class in addition to the share class(es) it initially incorporated with (the initial share class is typically the “Ordinary” class of shares). Classes differ by the specific rights attached to them, like different types of dividends or voting rights - a share class may even be stripped of certain rights entirely! Classes can also differ by nominal values, although this is less common. The creation of a new share class needs to be approved by the shareholders. The company should file Form SH01 (Return of Allotment of Shares) with Companies House within 1 month of the allotment. This form includes details of the shares issued and the statement of capital.

See Model Article 22 for Powers to issue different classes of share.

A meeting of all shareholders is known as a “general meeting”. All voting shareholders are usually eligible to join a general meeting, and they can send a representative (“proxy”) in their stead. If there are not enough shareholders to form a quorum, the meeting has to be rescheduled.

A general meeting is the meeting of the company’s shareholders, which in early-stage companies may not happen at all, not even once a year as practically it may not be needed: the “AGM”, or annual general meeting, is not a requirement applicable to private limited companies, and many (although not all) shareholders’ decisions may instead be made asynchronously in writing via a written resolution. The Companies Act specifically allows for using written resolutions – a tool that Model Articles are entirely silent on – and these resolutions are often circulated via email and signed in electronic form.

When a general meeting (meeting of the shareholders) is called by the board, it will only go ahead if the quorum is present. The Model Articles do not spell this out, but under the Companies Act the quorum is 2 shareholders (unless the company only has 1 shareholder, in which case the quorum is, of course, 1 shareholder). A meeting that is not quorate 30 minutes after its scheduled start time must be adjourned by the meeting’s chair.

See Model Article 41 for Adjournment of general meetings.  

All that is required under the Model Articles to send a representative to a shareholders’ meeting, in a shareholder’s place, is a valid proxy notice – a signed notice in writing stating the name of the shareholder and their proxy, as well as the general meeting(s) to which it relates. The proxy notice can contain directions on how to vote or give the proxy the liberty to decide for themselves. The directors may specify the mode of delivery of proxy notices when they convene the general meeting (Model Article 45). Appointing a proxy does not mean giving up the right to vote: a shareholder can always revoke a proxy by serving another notice in time for the relevant meeting and deciding to come to the meeting and vote on their own behalf.

See Model Article 46 for Delivery of proxy notices for general meetings.

The Model Articles give discretion to the board in deciding how shareholders’ meetings are conducted, including whether to hold them in person, remotely, or in a hybrid format. Shareholders attending remotely are still considered “present” at the meeting as long as they can speak and vote, so it is important to make sure remote attendees can access materials and contribute to discussions.

See Model Article 37 for Attendance and speaking at general meetings.

The directors are also entitled to attend and speak (but not vote – not in their capacity as directors, anyway) at any general meeting of the company. What is more, the board’s chair, if they have one and if present and willing, will also be the chair of the shareholders’ meeting, and as the meeting’s chair they can permit other persons to attend and speak, for example someone with relevant expertise to aid shareholders’ discussions.

See Model Article 40 for Attendance and speaking by directors and non-shareholders at general meetings. 

If the chair of the board is not present, a new chair needs to be appointed by the directors who did come to the meeting. If there are none, the shareholders elect the chair themselves.

See Model Article 39 for Chairing general meetings.

Votes are counted on a show of hands, which can produce unexpected results if a majority shareholder is outvoted by a group of smaller ones. To avoid this, a shareholder can request a “poll vote”. Watch this short video explaining how shareholders holding the majority of voting rights in a company can determine the outcome of a vote.

A show of hands is the easiest and default way to vote, and every shareholder with their hand raised will be considered as a single vote.

See Model Article 42 for Voting at general meetings. 

For example, John might have 25 ordinary shares (each of which are voting shares), but on a show-of-hands vote he will be taken to have only 1 vote.  

The alternative way to administer a vote is by poll, where each shareholder is given a number of votes equal to the number of their voting shares (in the example above, John would have 25 votes). Polls are not the default voting mode and must be demanded by either: the chair, the directors, at least 2 voting shareholders or a single shareholder with at least 10% of the total voting rights.

See Model Article 44 for Poll votes at general meetings.

If for any reason someone thinks a person should not be allowed to vote (e.g., they’re not a legitimate shareholder), the objection must be made at the meeting itself, and the chairperson determines if the vote is allowed. If no one objects at the time, the vote is considered valid.

See Model Article 43 for Voting at general meetings: Errors and disputes.

Appointing a director is easy and can be done by the shareholders or the board itself. There is no upper limit on board headcount. 

New directors need to be willing to take on the role, which is normally evidenced by a short “Notice of willingness to be appointed” that the incoming director signs, and legally allowed to do so, i.e. not legally disqualified from being a director. It is possible to appoint a director by having shareholders pass an ordinary resolution (simple majority vote), but the board itself can appoint a new director as well.

See Model Article 17 for Methods of appointing directors. You may search for disqualified company directors.

Unless the director resigns, they can only be removed in a handful of cases – or by the shareholders following a special procedure that is not even mentioned in the Model Articles.

A director can resign from office by serving a notice on the company, in which case all that is left to do is to file the TM01 form with Companies House to notify the registrar of the termination. It is also possible for the directorship to end automatically, e.g. if the director is declared bankrupt, rendered medically incapable to perform their duties for more than 3 months or becomes disqualified from holding office. 

See Model Article 18 for Termination of director’s appointment. 

Otherwise, to remove a director against their will, the shareholders can pass a resolution at a specially convened meeting and follow a special procedure set out in the Companies Act.

The default rule is that the board takes decisions, however small, collectively…

By default, unless the powers are delegated, any and all decisions are to be taken by the board collectively. This means that, if a company has 2 directors, the 2 directors must agree on every decision.

See Model Article 7 for Directors to take decisions collectively. 

Interestingly, as far as outside parties are concerned, any one director can bind the company regardless of the fact that they might be acting without the necessary approval or consensus – which is, of course, bad practice and may be a breach of the director’s duties.

For example, if Amy and Lydia are the company’s only directors and take all decisions together, but Amy really wants to move into a trendy office building while Lydia disagrees with the move, Amy might still go ahead and sign the lease. This contract could be difficult to undo – but Lydia and the company’s shareholders may raise a formal complaint and potentially even sue Amy for acting without necessary authority.

To make a collective decision, the directors do not need to hold a meeting: as long as the decision is unanimous, and all directors eligible to vote on the matter agree and communicate their agreement to each other in some form, the decision can be made without holding a meeting.

See Model Article 8 for Unanimous decisions. 

In practice, most decisions in early-stage companies are not made in board meetings but are made over WhatsApp, Slack, or another messenger app: if one director suggests a course of action and the rest of them react with a thumbs-up emoji – that is generally considered a unanimous decision from a practical perspective. Decisions should always be agreed in writing regardless of medium. A written board resolution signed by each director is the conventional and compliant way to document a decision like this.

Delegation is an important tool. It allows the board to assign some of their responsibilities to individual directors or other team members, whether or not they are directors. For example, the board may pass a resolution to delegate certain operational responsibilities to a specific director, or they could delegate hiring responsibilities to an employee with the title of Head of HR. Delegated powers can be changed, curtailed – or taken away entirely by the board at any time. 

See Model Article 5 for Directors may delegate.

The board can delegate certain powers (projects) to committees - groups made up of directors that advise on specific areas of operation. Committees are entirely optional for small private companies limited by shares, and not every company will have them. For example, the board may decide to put in place a finance committee to review the company's financial performance and create rules that the committee needs to comply with.

See Model Article 6 for Committees.

For decisions that warrant a group discussion, the directors convene board meetings.

Any director can call a meeting by sending a notice to the rest of the board. The notice needs to include the place, time and date of the meeting, as well as any joining instructions (links for those joining remotely). The length of notice is not prescribed in the Model Articles, but it needs to be reasonable. For routine discussions, 7 to 14 days could make sense, but if the company is dealing with a crisis and needs to decide fast, there can be hours or even minutes between the notice and the meeting.

See Model Article 9 for Calling a directors’ meeting.

Directors can participate in meetings remotely, as long as they are able to hear others and speak or type themselves. If directors attend the meeting from different countries, they can treat the meeting as taking place in either location, but the board should always consider the implications of choosing overseas locations as the venue because this may determine the place of effective management and control of the company, which could be important for tax residency purposes.

See Model Article 10 for Participation in directors’ meetings.

For a board meeting to go ahead, it needs to be quorate, i.e. attended by at least 2 directors – although the directors can establish another quorum threshold. If not enough directors are present, all the board can do is schedule another meeting. Please remember, if you are a sole director company that has adopted the Model Articles, the 2-person quorum requirement does not apply to you. Watch this short video explaining why sole director companies can use the Model Articles.

See Model Article 11 for Quorum for directors’ meetings.

Somebody needs to chair the directors’ meetings, and the directors may appoint a chairperson for a particular meeting or until further notice. The chair is in charge of keeping the discussion flowing, calling the votes, allowing other attendees to join and speak at the board meeting, etc. One very important power of the chair is their casting vote, which is exercised to break a deadlock in case the votes casted by directors result in a draw. This power is not intended to be used frequently but serves as an important tool for ensuring that decisions can move forward, even in contentious situations. 

See Model Article 12 for Chairing of directors’ meetings and Model Article 13 for Casting vote.

The board recommends the amount of dividends and can pay an interim dividend, but shareholders have the final say on dividends.

Dividends can only be paid from the profits of the company. The board can recommend a dividend if the company’s most recent accounts show a profit, and they should also consider whether there have been adverse events since the accounts date. 

If the board recommends a dividend, the shareholders decide whether anything gets paid, up to the board-recommended amount. The board can also go ahead and pay an interim dividend in advance of the shareholders’ vote – typically a smaller amount in anticipation of the final payout when the shareholders finally declare the dividend. Interim dividends are not allowed if the company has issued shares of different classes and still owes declared (but remaining unpaid) dividends to preference shareholders.

Dividends should be distributed pro rata to the shareholders on the resolution date, unless the shareholders’ resolution or specific share class rights dictate otherwise.

See Model Article 30 for Procedure for declaring dividends.

If recommended by the board and approved by the shareholders, dividends don’t have to be paid in cash. The company can pay dividends (in full or in part) by transferring assets of the same value to the shareholders, like shares in other companies, vehicles and other assets. This may involve arranging for the valuation of the non-cash asset, providing additional cash to a recipient to adjust their rights and transferring the assets to a trustee, and the directors are free to decide how to confirm the valuation of those assets.

See Model Article 34 for Non-cash distributions.