So, you are forming your new company, you have been waiting for this day for so long, you have perhaps been saving your pennies diligently to launch your business, and this company is your baby. No doubt you will have heard new parents complaining regularly that babies ‘don't come with an instruction manual'. Good news - companies do!
The Articles of Association (often referred to as simply Articles) of a company are the instructions on how to run it. If the instructions aren't followed, it will become unwell and once you've broken it, it's quite expensive to fix. Acting in breach of the Articles is an offence, and this is the reason it is so important to ensure that you have the right instruction manual for your company. Imagine if your baby came with an instruction manual for a puppy. At some point you would find yourself in all kinds of trouble!
Your Articles will detail things like:
- How the directors will behave and how they will make decisions
- Is liability limited - if so, how? By shares or guarantee?
- If limited by shares, who controls the shares, what types of shares are there and who must be offered new shares
- How dividends and profits will be dealt with
- How general meetings will proceed and who is eligible to vote
- What will happen if the company is wound up
- Who controls the transfer of shares and to whom can shares be transferred to
This list is by no means exhaustive but hopefully demonstrates how important it is to get your Articles right at the beginning because only you know how best to raise your company. Your company is unique, your instruction manual should be too. If you find that you require additional Articles beyond those included as standard, Vistra offers a range of Optional Articles which can be included during the incorporation of your company.