The following 4 legal documents are key when starting your business.
Memorandum of Association
This is a legal document that is signed by all initial shareholders at the time of registration, agreeing to form the company. If a company is registered online, then it is automatically created as part of your online registration. However, if you register by post, you must send it in using the Memorandum of Association template.
Articles of Association
The Articles of Association are the rules or the constitution of the company, detailing the rules for the management and organisation of the company.
All shareholders of the company, including any investors, are automatically bound by the articles when they become a shareholder. The Articles of Association usually contains provisions on decision-making by directors.
The Article will also contain a provision on decision-making shareholders, a provision on share capital and will detail how directors will be appointed, among other things.
Whether there are different classes of shares, whether the directors have a right to issue shares of the company, or when a shareholder is allowed to transfer their shares will all be included in the Articles of Association.
For the Article of Association, you can use model articles. In fact, most start-ups do use model articles.
This form needs to be filled in in order to register the company. The information that goes into this form includes the company name, the company type, the address of the registered office, particulars of the directors and company secretary.
The Memorandum of Association, Articles of Association and the Form IN01 must all be delivered to the Company House alongside payment of the incorporation fee. Once this is done, the company is usually registered within 24 hours.
The Shareholders Agreement regulates the relationship between shareholders of the company and the company itself. The Shareholders Agreement sits alongside the Articles of Association of the company. But unlike the Articles, it is a private document, confidential to the parties to it.
The agreement sets out the rights and obligations of the shareholders, describes how the company is going to be run, and creates protection and ground rules for both the shareholders and the company.
Shareholder Agreements can vary hugely but will often contain provisions on what issues and decisions must have approval from the shareholders, also known as veto rights.
What happens if a company is sold in its entirety or is listed on a stock exchange? How are the shares valued? These are usually important provision for investors and will be detailed in the Shareholders Agreement.