Model articles of association – are your company’s articles in need of a trip to the tailors (solicitors)?
18th April 2024
A company’s constitution, the specific rules and restrictions on what it can or cannot do (or any limits on its directors power or authority ) that are over and above the statuary legal restrictions on a company are set out in the e Articles of Association adopted by the company. Often, a company is incorporated with model articles of association as it is easier and more cost effective than drafting bespoke articles of association.
Whilst it can be a more cost-effective way of running the company, as businesses seek funding to establish themselves or grow further if they are fortunate enough to have an asset (like a property) to secure borrowed funding against, model articles are a standard template and are often required to be amended by lenders wishing to reduce risks associated with lending. The requested amendments can be a multitude of things, some common requested amendments have been changes to the provisions regarding the number of directors required or the rights of the directors.
Recently, the amendments to the articles of association requested by lenders have required that the constitution of a company include that the company has the power to borrow monies, grant mortgages and own property. Whilst to a Corporate Lawyer a company as a separate legal person (an entity) has the capacity to enter into agreements, handle monies and own property, some lenders have required that the articles of association contain a confirmation that the company is able to do so.
The requirements of lenders have to be met in order for funding to be obtained. If you are considering borrowing funds, restructuring your asset ownership or moving forward with acquisitions or other transaction, you may need to amend your articles to ensure that matters progress smoothly. There can be serious consequences if you do not follow your articles of association.
If you aren’t sure about your articles of association and/or your obligations, it is always worth seeking legal advice to make sure you are on the right track and to prepare amendments if you need them.
Contact us for assistance. The corporate / commercial department at BTTJ advises businesses across all sectors, from long-established companies to enterprises that are just starting up. Our team consists of commercial and corporate law solicitors with extensive expertise – and the experience required to adopt the right strategy in every situation.
Article written by Corporate Commercial Solicitor Kyle Smith.