Contractor guide to new model articles of association

InTouch Accounting

Contractors incorporating a limited company for the first time after 1 October 2009 can benefit from new model articles of association introduced by the Companies Act 2006. These have been specifically designed to reflect the behaviour of smaller limited companies, including those typically run by contractors.

The new model articles were devised according to the principle of ‘think small first’ and govern the relationship between company directors, shareholders and the legal entity, which is the limited company itself. The model articles apply by default to all new companies incorporated after 1 October 2009, unless the company registers its own articles with Companies House.

In addition to brand new companies, the new model articles can also be adopted by contractors with existing contractor limited companies, although it is not a legal requirement to do so. The benefits of updating the articles for existing companies can be to remove the need for a memorandum of association, to take advantage of many of the modernising provisions and to ensure the articles are in-line with all the new provisions of the Companies Act 2006.

Changes brought in through the new model articles of association

The key changes introduced by the new model articles include:

  • There is no requirement to hold annual or other general meetings
  • Directors can use ‘any means’ to reach a decision, which includes telephone, email or even text messages
  • Memorandum of association are no longer required
  • Companies can be incorporated with a single person (member)
  • There is no longer ‘authorised share capital’, which greatly increases the flexibility of the number and type of share that can be issued.

For contractor limited companies with only one contractor-director and shareholder, the changes will have little impact on the day-to-day running of the contractor’s business, except that the contractor may find their existing articles in conflict with some provisions of the Companies Act 2006, and should check with their accountant about any action they should take.

Why articles of association are important

The articles of association of a company are the set of rules that govern the relationship between the limited company, its directors and its shareholders. They are the key instrument of ‘corporate governance’, which require those running a company to do so within the law and in the best interests of that business and its shareholders.

Many contractor limited companies that start-off as one-person businesses will have little recourse to the articles of association, as the contractor is the board of directors and shareholder combined. Indeed, many contractor limited companies may never have recourse to the articles throughout the life of the company and the contractor’s career.

However, the articles are of vital importance when something goes wrong and when there is a dispute between shareholders and directors. It is particularly important when a contractor limited company grows to have more directors and shareholders and/or it evolves into something bigger, such as a multi-person consultancy, a software house or a contractor-staffing agency.

There are two versions of the new model articles:

  1. Articles for private companies limited by shares – virtually all contractor limited companies will use this model
  2. Articles for private companies limited by guarantee, intended for social enterprises and charities, and therefore much less likely to be used by the vast majority of contractors.

The articles are of vital importance when something goes wrong and when there is a dispute between shareholders and directors

Why contractors with ‘old’ articles should adopt the model ones

The main reason for contractors who created articles prior to 1 October 2009 to consider changing to the new ones is that they may well find that some provisions of the older articles are in conflict with the new legislation.

Contractors who incorporated their limited company before 1 October 2009 and wish to adopt the model articles of association can easily do so by amending the existing articles by a special resolution.

Published: Tuesday, March 09, 2010

© 2015 All rights reserved. Reproduction in whole or in part without permission is prohibited. Please see our copyright notice. If you want to use any content you have seen on this site then please request our media pack and ask for details of our Content Licencing Service.

Inni Accounts


Readers Comments...


  
Bookmark and Share
  
     
  

Latest Site Updates

ContractorCalculator: Contracting news in brief – 24/Apr/2015 ContractorCalculator: Contracting news in brief – 24/Apr/2015

News this week covers: Scottish contract market softens; contractors paid more than permies; contractor numbers increase; and new HMRC guidance.

Contracting pays: over two thirds of clients pay contractors more than permies Contracting pays: over two thirds of clients pay contractors more than permies

Contracting clients choose to hire contractors for short-term access to strategic skills, with two thirds paying contractors more than employees.

Contractor Doctor: Can I claim lunch expenses when walking to work? Contractor Doctor: Can I claim lunch expenses when walking to work?

There are no HMRC rules that prevent a contractor from claiming subsistence expenses just because they walk to work.

Contract market in Scotland softens further: should contractors look south for work? Contract market in Scotland softens further: should contractors look south for work?

Scotland’s contracting market softens for another month, in contrast with the wider UK. Should contractors move south to find new contracts?


  
  

Twitter

Follow Us On Twitter


  
     

  
  

Contractor solutions

Contractors Handbook IR35 Report - 15 Years IR35 Test Clever Accounts Accountants Checklist CFSC Left Sky
  
  

Contractor solutions

InTouch Accounting

Perfect mix of technology & personal service for only £92 per month.

Contractor Accountant

Free consultation, incorporation and IR35 reviews. Find out more…

Clever Accounts

Complete contractor accounting service. 24/7 online access. £69 pm!

Parasol

The UK’s largest employment organisation - 0% risk, 100% compliance

Contractor Angels

Take home over 88% from your income. 100% compliant. Calculate now!

NA D J Colom Accountants Bedouin Group Mortgages NewsNow
  
Caprica Accountants Contractor Insurance Life Insurance

  

The UK's leading contractor site. Independently audited traffic (ABC) – 124,827 monthly unique visitors.