Your company’s rulebook: Model Articles vs Smart Formations’ House Articles

Key definitions

Articles of association: the company’s internal rules. In the same way that a social club, sports club, or other members’ organisation runs by a set of rules, a company runs by its Articles of Association. Under section 33 of the Companies Act 2006, the company’s constitution binds the company and its members as if there were covenants on the part of the company and of each member to observe those provisions.

Model articles: the standard default articles prescribed for private companies limited by shares under the Companies (Model Articles) Regulations 2008 and published by GOV.UK for companies incorporated on or after 28 April 2013.

House Articles: a formation agent’s own standard, in‑house set of Articles of Association used across many incorporations. They are not necessarily bespoke to any one client.

Special resolution: a shareholder resolution requiring a 75% majority for matters such as amending the Articles of Association.

Ordinary resolution: a shareholder resolution passed by a simple majority.

Shareholder: the holder of shares in the company.

Introduction

Every company runs on a set of rules, just as a sports or social club does. A club’s rules dictate who joins, who takes part, what happens when members fall out, and what to do with any surplus once membership fees, bar takings, and other income have covered the annual costs. A company has the same issues in a different setting. Its rulebook is called the Articles of Association.

Those Articles of Association set out who makes decisions, how shares are owned and transferred, how profits are paid out, and what happens when directors or Shareholders disagree. They matter most when something goes wrong, because that is when the small print stops being background and starts deciding outcomes.

When a company is formed, its founders must decide which Articles of Association to use. They can adopt the government’s standard Model Articles, or they can adopt an alternative set of Articles. If they use alternative or bespoke Articles, those Articles still have to comply with the relevant requirements set out in the Companies Act 2006. Companies House will generally register whatever Articles are filed with it, so it does not check that an unusual or heavily customised set is legally effective. Smart Formations offers its own standard House Articles as an alternative that is better suited to small, director-owned companies.

The Model Articles of Association – contents

The Model Articles of Association for private companies limited by shares are split into five sections as follows.

Part 1: interpretation and limited liability

Articles 1 and 2 lay the groundwork. Article 1 defines the main terms used throughout the document, including “articles”, “director”, “shareholder”, “ordinary resolution”, and “special resolution”. Article 2 sets out the limited liability rule, namely that the liability of members is limited to the amount, if any, unpaid on the shares held by them.

Part 2: directors

Part 2 deals with the management of the company. Article 3 gives the directors general authority to manage the company’s business. Article 4 reserves a power for the Shareholders, by special resolution, to direct the directors to take, or refrain from taking, specified action. Articles 5 and 6 cover delegation and committees., or refrain from taking, specified action. Articles 5 and 6 cover delegation and committees.

The main board procedure rules are in Articles 7 to 16. Article 7 contains the general rule about director decision-making and the sole-director carve-out. Article 8 deals with unanimous decisions. Articles 9 to 12 deal with calling meetings, participation, quorum, and chairing meetings. Article 13 gives the chair a casting vote where votes are equal, subject to the stated exception. Article 14 deals with conflicts of interest in relation to proposed transactions or arrangements with the company. Article 15 requires records of directors’ decisions to be kept for at least ten years. Article 16 lets the directors make further procedural rules.

Articles 17 to 20 deal with the directors themselves. Article 17 covers appointment. Article 18 sets out the circumstances in which a director ceases to hold office. Article 19 deals with directors’ remuneration. Article 20 allows the company to pay reasonable expenses properly incurred by directors in connection with meetings, resolutions, or the exercise of their powers and duties.

Part 3: shares and distributions

Part 3 covers share capital and money out. Article 21 deals with shares to be fully paid. Article 22 gives the company power to issue shares with different rights or restrictions and also redeemable shares. Articles 24 to 29 deal with share certificates, transfers, and transmission of shares. Articles 30 to 35 cover dividends and other distributions, and Article 36 deals with capitalisation of profits.

Part 4: decision-making by Shareholders

Part 4 deals with general meetings and Shareholder voting. Articles 37 to 41 cover attendance, quorum, chairing meetings, and adjournment. Articles 42 to 46 deal with voting, polls, proxies, and delivery of proxy notices.

Part 5: administrative arrangements

The remaining provisions deal with administrative machinery such as communications, company seals, indemnity, and insurance.

In practice, many founders forming companies online do not spend much time thinking about the Model Articles. They arrive on a formation agent’s website, provide the information requested, and adopt the standard Articles offered as part of the process. Some companies, for example special purpose vehicles with bespoke investor terms or unusual share structures, use tailored Articles of Association drafted separately. Smart Formations can accept uploaded Articles of Association where clients already have a bespoke constitution, but the vast majority of director-owned companies simply adopt the House Articles provided as part of the formation service.

The Model Articles are free, lawful, and workable. For many companies they are perfectly adequate. Even so, many founders choose an alternative set of Articles of Association that better fits the company they are setting up. That is the space in which standard House Articles sit.

Where Smart Formations’ House Articles differ

Smart Formations’ House Articles start from the same foundation as the Model Articles and change only the parts that matter in practice. Most of the wording remains very close to the statutory model. The changes fall into two broad groups: changes that reduce practical uncertainty or add a useful statutory option, and changes that reflect a deliberate practical choice that founders should understand.

1. Sole director decision-making

Model Articles position. Article 7(1) says that the general rule is that decisions of the directors must be either a majority decision at a meeting or a unanimous decision taken in accordance with Article 8. Article 7(2) then says that, if the company only has one director, and no provision of the Articles requires it to have more than one director, the general rule does not apply and the director may take decisions without regard to any of the provisions of the Articles relating to directors’ decision-making. At the same time, Article 11 says that the quorum for directors’ meetings may be fixed from time to time by a decision of the directors, but it must never be less than two.

Smart Formations’ House position. The House Articles add a simple express rule that where there is a single director, one director is enough.

Why we chose this approach. The intention is to reduce practical uncertainty for companies operating with a sole director. For the director-owned companies that typically use online formation services, Smart Formations considered it more suitable to state the sole-director position plainly, rather than rely on the interaction of several Model Articles.

2. Small purchases by the company of its own shares

Model Articles position. The Model Articles do not contain a dedicated provision dealing with the small-scale own-share purchase route.

Statutory background. Section 690 Companies Act 2006 provides that a limited company having a share capital may purchase its own shares, subject to Chapter 4 of Part 18 and to any restriction or prohibition in the company’s Articles. The explanatory notes make clear that section 690 removed the former requirement for prior authorisation in the company’s Articles, while preserving the ability of members to restrict or prohibit purchases through the Articles if they wish.

Smart Formations’ House position. The House Articles include a specific provision allowing a small cash buyback up to the lower of £15,000 or 5% of the nominal value of the company’s fully paid share capital in a financial year, always subject to the Companies Act 2006 requirements.

Why we chose this approach. The intention is to include an express constitutional route that reflects the statutory framework for own-share purchases. In practice, Smart Formations considered this more suitable for the director-owned companies that use its service, because it gives them a clearer route for small buyouts and tidy-ups without having to revisit their Articles later.

3. Conflicts of interest and board paralysis

Model Articles position. Article 14 provides that, if a proposed decision of the directors is concerned with an actual or proposed transaction or arrangement with the company in which a director is interested, that director is not to be counted as participating in the decision-making process for quorum or voting purposes unless one of the stated exceptions applies.

Smart Formations’ House position. The House Articles reduce the decision-making group to the unconflicted directors. If every director is conflicted, the matter is referred to the Shareholders.

Why we chose this approach. The intention is to reduce the risk of the board becoming unable to act where conflicts affect every director. For director-owned companies, Smart Formations considered it more suitable to prioritise a workable decision-making path, while leaving directors’ statutory duties and conflict-management obligations in place.

4. Tied board votes

Model Articles position. Article 13 gives the chair a casting vote if numbers of votes for and against a proposal are equal, unless the chair is not to be counted as participating in the decision for quorum or voting purposes.

Smart Formations’ House position. The House Articles remove the casting vote. If the board is tied, the proposal fails.

Why we chose this approach. The intention is to avoid one side prevailing solely because its nominee chairs the meeting. In a 50/50 director-owned company, Smart Formations considered that trade-off more suitable for the kinds of companies using its service, even though it can increase deadlock risk where the board is evenly split.

5. Adjourned Shareholder meetings and quorum problems

Model Articles position. Articles 38 and 41 deal with quorum and adjournment. If a quorum is not present, the meeting cannot transact substantive business and must be adjourned.

Smart Formations’ House position. The House Articles provide that, at the adjourned meeting, whoever attends forms a valid quorum.

Why we chose this approach. The intention is to reduce the risk of company business being blocked by non-attendance. For many director-owned companies using online formation services, Smart Formations considered it more suitable to reduce the risk of one Shareholder obstructing necessary business by staying away.

Key differences at a glance

A few smaller drafting changes

Smart Formations’ House Articles also make smaller drafting changes.

• They use “shareholder” rather than “member”, which many readers find easier to follow.
• They add clearer signposting to relevant statutory provisions where helpful.
• They include a process for dealing with a director who has been absent or missing for an extended period.

None of those changes rewrites company law. They are practical drafting improvements designed to make the rulebook easier to read and easier to use.

Conclusion

A company’s Articles of Association are easy to ignore until a dispute, a buyback, or a board deadlock brings them into focus. For many incorporations, the real choice is not between the Model Articles and a heavily bespoke constitution drafted from scratch. It is between the government’s default rulebook and an alternative set of Articles that still has to work within the Companies Act 2006. Smart Formations’ House Articles are intended to keep the familiar Model Articles structure while improving a small number of practical points that matter in real director-owned companies.