Memorandum and articles of association: Overview, definition, and example
What is the memorandum and articles of association?
The memorandum and articles of association are two important documents that outline the rules and regulations for a company. Think of them as the company’s “rulebook.” The memorandum sets out the company’s basic details and its purpose, while the articles outline how the company will be run on a day-to-day basis.
The memorandum is like the company’s birth certificate—it declares the company’s name, its purpose, and its registered address. The articles, on the other hand, are more like the company’s operations manual, detailing things like how decisions are made, how directors are appointed, and how shares are handled.
Why are the memorandum and articles of association important?
These documents are important because they set clear guidelines for how a company operates, helping to avoid confusion and disputes down the line. They also ensure that the company complies with legal requirements. When setting up a company, especially a limited company, these documents must be filed with the relevant authorities to make the company officially recognized.
The memorandum shows that the company’s founders agree to form the company, and the articles give the company a roadmap for how it will function. Both documents help protect everyone involved by ensuring that everyone knows their rights and obligations from the get-go.
Understanding the memorandum and articles of association through an example
Let’s say you want to start a small business and you’ve decided to form a limited company. To do so, you’ll need to file a memorandum and articles of association with the government. The memorandum might include your company’s name, a statement of what your business will do (such as providing marketing services), and where your company is based.
The articles will detail how the company will be run, including things like who can be a director, how meetings will be held, and how voting will take place. These documents ensure that everyone, from the company’s directors to its shareholders, is on the same page about the rules that govern the business.
Example of a memorandum and articles of association clause
Here’s an example of what a clause in the articles might look like:
“The directors shall be appointed by a majority vote of the shareholders. Directors shall serve for a term of three years and may be re-elected by the shareholders at the end of their term. Any director may be removed from office by a two-thirds majority vote of the shareholders.”
This example explains how directors are chosen and removed, showing how decisions are made according to the articles of association.
Conclusion
The memorandum and articles of association are key documents when setting up a company. The memorandum sets the company’s purpose and structure, while the articles govern how the company will operate day-to-day. These documents help prevent misunderstandings and legal issues by providing clear guidelines for the company’s operations and ensuring all stakeholders understand their roles.
For SMBs, especially when starting a new company, it’s essential to get these documents right from the beginning. They lay the foundation for how your business will run and ensure that everything operates smoothly. Having a clear memorandum and articles of association can help you avoid legal complications and make it easier to manage your business as it grows.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.