What are the Model Articles?

The Articles of Association of a company are the rules which its directors and shareholders must comply with in the operation and management of the company. They operate as a contract between the shareholders and the company. The directors of a company are under a statutory duty to act in accordance with its Articles of Association. The Companies Act 2006 (and associated regulations) provide a model set of Articles of Association for each of the different types of company which can be formed. These include Model Articles for private companies which are limited by shares. The Model Articles can be adopted by a company as its Articles of Association. Unless varied or replaced by a different set of Articles of Association, the Model Articles will apply. On formation of a company, the formation process requires a company either to confirm that the Model Articles will apply or to provide its own set of Articles of Association.

Articles of Association: wholly-owned company

Name: Articles of Association Template for Wholly-Owned Company
SKU: ART001.001
Price: 35.00 GBP
Availability: InStock

Articles of Association for a wholly-owned company, amending and supplimenting the Companies Act 2006 Model Articles, for use where the company has a single shareholder and is 100% owned either by an individual shareholder or by another company as part of a corporate group.

for a wholly-owned private limited company
for a company owned either by a single individual or another company
to adopt new Articles of Association which amend and supplement the Companies Act 2006 Model Articles
in conjunction with a special resolution of the sole shareholder to adopt the new Articles of Association

What are the key features?

in the form of new Articles of Association for the company
amendments and additions to the Companies Act 2006 Model Articles covering:
- number, appointment and removal of directors
- procedure and quorum for meetings of directors
- directors’ conflicts of interest and transactions with directors
- directors’ authority to allot shares
- ability for the company to purchase of shares out of capital
- potential for change of company name by directors resolution
- procedure for shareholder meetings

What else do I need to know?

Model Articles

The Articles of Association of a company are the rules which govern the operation and management of a company. They operate as a contract between the shareholders and the company. The directors are under a statutory duty to act in accordance with its Articles of Association.

The Companies Act 2006 provides a model set of Articles of Association, known as the Model Articles, which companies can adopt unless they choose to have their own separate form of Articles of Association. Unless varied or replaced by a different set of Articles of Association, the Model Articles will apply. On formation of a company, the registration process requires a company either to confirm that the Model Articles will apply or to provide its own set of Articles of Association.

Does a company need Articles of Association other than the Model Articles?

For a company which has two or more shareholders, the Model Articles should be amended or replaced by the company’s own form of Articles of Association.

Where a company is 100% owned by a single shareholder, the Model Articles will operate adequately in most circumstances. However, there are circumstances where a wholly-owned company might benefit from its own set of Articles of Association, such as:

a company with a single director. Following a reported legal case in 2022, there is legal uncertainty as to whether a single director of a company with the unamended Model Articles can, alone, legally manage and take decisions on behalf of a company if the company had previously had more than one appointed director. The Model Articles can be amended to remove this legal uncertainty.
a company with one or more directors who are not the sole shareholder. The Model Articles require the appointment of a director to be approved at a board meeting. Unless the director elects to resign (or in certain other limited circumstances), the removal of a director requires a shareholder resolution passed at a general meeting of which what is known as special notice under the Companies Act has been given. The Model Articles can be amended to enable the sole shareholder to appoint, remove and replace directors simply on written notice to the company.
director voting on transactions between the director and the company. The Model Articles restrict a director from voting on a matter which involves a transaction between the director and the company. To avoid having to pass a shareholder resolution to approve such a transaction, the Model Articles can be amended in advance to allow the relevant director to vote in these circumstances.
purchase of own shares. The Companies Act permits the small purchase of its own shares by a company out of capital if this is permitted by the Articles of Association. The Model Articles do not contain this permission and can be amended to include it.
change of name. The Companies Act allows a company to change its name in circumstances provided for in the Articles of Association. The Model Articles do not make specific provision for a change of name and can be amended to allow a change of name to be approved by directors rather than requiring a special shareholder resolution.

Adoption of new Articles of Association

This requires a special shareholder resolution. For simplicity, this can be passed as a written resolution signed by the sole shareholder.

Once adopted, the new Articles of Association (and shareholder resolution) will need to be filed at Companies House within 15 days of the passing of the shareholder resolution.

What other documents are available?

For examples of Articles of Association where the company has more than one shareholder, see

Description

When do I use this document?

as the disclosure letter to be delivered at closing of an investment in a private limited company
for general and specific disclosures to be given by the persons acting as warrantors under the investment or subscription agreement

What are the key features?

in letter form from the warrantor(s) to the investor(s)
introductory paragraphs, linking the disclosure letter and disclosures to the warranties in the investment or subscription agreement
general disclosures of certain matters, including:
- the contents of the disclosure documents, which are usually the documents provided to the investor(s) during due diligence and to be set out in an index to the disclosure letter
- in relation to commercial property, matters available from public searches
- matters which would be available from:
  - a Companies House search of the target company
  - a winding-up search on the target company
  - a search of the UK Intellectual Property Office
- matters disclosed in correspondence between the parties and their advisers
specific disclosures against the warranties to be included in table form

What else do I need to know?

Corporate transactions usually involve one party (the warrantor) providing warranties to another party concerning the company and its business, financial performance, prospects, assets, contracts, rights and liabilities. A breach of the warranties may result in a legal claim against the warrantor for damages for breach of contract.

The warrantor may wish to disclose specific events or circumstances as exceptions to certain warranties. The disclosure of these matters is intended to shield warrantor against a potential claim for breach of the particular warranties. Instead of amending or qualifying the warranties themselves, the disclosures against specific warranties are set out in a separate letter prepared by the warrantor, known as a “Disclosure Letter”.

As an example in an investment transaction, the agreement may include a warranty that the target company has complied with all legal requirements in its business conduct. If the founders, acting as warrantors, are aware of a failure by the company to comply with a specific legal requirement, they would disclose this as an exception to the warranty. This is done by setting out a narrative of the circumstances of the breach, along with supporting documents, in the Disclosure Letter. If the disclosure satisfies the defined requirement of “fair disclosure” in the investment agreement, it should shield the founders from a claim under the investment agreement for breach of this warranty regarding the disclosed non-compliance.

The warranties may explicitly require that certain facts or documents be included in the Disclosure Letter. For instance, a warranty might require that the Disclosure Letter contains details and copies of all material contracts entered into by the target company. Failure to disclose a material contract may result in a claim against the warrantors for breach of warranty if the omission causes loss to the investor(s).

Upon receiving disclosures during transaction negotiations and discussions on the draft Disclosure Letter, the investor(s) have several options:

to accept the disclosure, with the result that the investor(s) have no legal recourse if the disclosed matter leads to an actual liability or loss
to request specific indemnity cover from the warrantors in the investment agreement to cover the disclosed matter, under which the investor(s) may be able to recover any resulting liability or loss notwithstanding the disclosure
to renegotiate the transaction terms, such as adjusting the company’s pre-investment value, or hold back some investment until the risk of a liability or loss has expired in the future
to withdraw from the transaction entirely