When setting up a company in England and Wales, one of the first legal documents you will encounter is the Articles of Association. The Articles form the legal foundation of your company, defining what it is, what it can do, and how it must operate.
If you are launching a startup, you should not overlook their importance, as they will shape how decisions are made and how disputes are handled in the future. They set out the legal relationship between the company and its shareholders, meaning you, your co-founders, and future investors. If you don’t take the time to understand them properly, you risk confusion over ownership, voting rights, and control later on.
That said, we generally advise startups not to make extensive amendments to their Articles, if any at all, at an early stage. Instead, you can rely on a Shareholders Agreement, including a clause that states it overrides the Articles if there is any conflict. This gives you some flexibility while keeping sensitive arrangements confidential.
You may want to read: Shareholders Agreement v’s Articles of Association
What are the Memorandum and Articles of Association
Companies have a Memorandum of Association as well as Articles of Association. The Memorandum of Association is a short, formal record confirming the intention to form a company. It lists the company’s name, the names and signatures of the first shareholders (called subscribers), and a statement confirming each has agreed to take at least one share.
The memorandum is signed when the company is incorporated and then becomes a permanent record that cannot be amended. It’s simple, but essential, because it shows that the founders legally agreed to create the company.
The Articles of Association, often called “the Articles”, act as the company’s internal rulebook. They set out how your business is run and how power is divided between directors, who manage the company day to day, and shareholders. They typically cover how directors are appointed and removed, how shares are issued, voting rights and other rights attaching to shares, meeting procedures, and other formalities.
Every limited company must have Articles. You can either adopt the model articles that are provided by statute as the default form of articles or create your own. While the model version is fine for very simple setups, some startups may need something more tailored. Often, the model articles are adopted by the company on incorporation and are then amended.
How Startups Should Approach These Documents in Practice
When setting up your company, you should view the Articles of Association and Shareholders Agreement, as a framework for long-term success, and not just something to tick off during incorporation. Here’s how to approach them in a practical way:
1. Start with a conversation among founders
Before incorporating the company, you and your co-founders should discuss what kind of business you want to build, how decisions will be made, and how ownership will be shared. These discussions should guide how your Articles interact with any Shareholders’ Agreement, if you decide to have one. For example, will all founders have equal voting power? Will certain business decisions require unanimous approval?
2. Read the model articles carefully
It’s worth reviewing the model articles to see if you want to modify them. For instance, the model articles do not restrict share transfers, which could cause problems if one founder leaves but this could be covered in the more confidential Shareholders Agreement.
3. Align with a shareholders’ agreement
Your Articles and Shareholders’ Agreement should complement each other. Use the Articles to set general company rules, and use the shareholders’ agreement for more detailed and private arrangements, such as how profits are shared or how disputes are resolved. You can include a clause that states that the Shareholders’ Agreement overrides the Articles, should there be any conflict between the two.
Common Mistakes Founders Make
Founders sometimes overlook how much influence the Articles of Association have on how their company is run. These documents are not just legal formalities. They set out who owns what, who has control, and how future decisions will be made. Below are some of the most common mistakes startups make when approaching them, and how you can avoid the same problems.
Using the Model Articles Without a Shareholders Agreement
The model Articles provided by Companies House are designed for very simple businesses. They cover only the basics and often leave out the details that startups need. For example, they do not include restrictions on selling shares, rules for resolving disputes between directors, or guidance on how to issue new shares to investors or employees or protect the company from competition by its shareholders.
If you adopt them without reviewing them, you might discover later that they do not protect you or reflect how your business actually works. You should read through each section and decide what fits and what needs to be changed or opt to cover these details in a Shareholders Agreement that overrides the Articles.
Relying on Verbal Agreements
Many startups begin with friends or colleagues who trust one another, and important decisions are often agreed informally. However, verbal agreements about ownership, voting rights, or management duties are difficult to enforce unless they are written into the Articles or a Shareholders’ Agreement.
You should write down how many shares each founder owns, how decisions will be made, and what happens if someone wants to leave the business. Having everything in writing prevents confusion and avoids later disputes about who was promised what.
Ignoring the Link Between the Articles and Shareholders’ Agreement
The Articles of Association and the Shareholders’ Agreement should work together. But while the two documents should be consistent, they shouldn’t duplicate each another. Most startups rely on the Shareholders’ Agreement to deal with detailed or changeable issues (such as decision-making, exits, or share transfers) so that the Articles remain stable.
It’s common to include a clause in the Shareholders’ Agreement confirming that it will take precedence if there is ever a conflict between the two. This gives the company flexibility to adapt arrangements privately without having to amend its Articles or disclose sensitive terms publicly.
Failing to Plan for Future Investors or Employees
At the start, you might only have two or three founders, but your company structure will almost certainly change as it grows. You may raise investment or want to issue shares to new team members. If your Articles are not flexible enough to allow for these changes, you may need to rewrite them later.
You should treat the Articles as a long-term framework rather than something to amend often.
Why You Should Use a Solicitor
Some founders think professional legal advice is unnecessary at the startup stage, but that can be a costly assumption. Solicitors who specialise in company law can spot problems you might miss, such as gaps in your Articles or your Shareholders Agreement, missing investor protections, or inconsistencies with other documents.
A short consultation can save you from major administrative or legal issues later.
They can advise you on key issues such as:
- How to divide ownership fairly between founders.
- What rights and responsibilities each shareholder should have.
- What powers directors need and what limits should apply.
- How to handle new investors or employee share schemes.
These decisions have long-term effects. Once your Articles are filed, they become a public record and can only be changed with a shareholder vote. Mistakes or unclear wording can lead to disagreements, and those are far harder to fix later.
Need Help Drafting or Reviewing Your Company Documents?
Here at JPP Law, we advise startups and growing companies that are incorporated in England and Wales on company formation, shareholder agreements, and the preparation of bespoke Articles of Association.
If you’re setting up a business, seeking investment, or updating your company structure, we can help you get your legal documents right from the start. Get in touch today to arrange a consultation.
