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Articles of Association

Also known as: Company Constitution, Articles

Definition

Articles of association are the internal rulebook for a limited company, setting out how it's run and—crucially for estate planning—what happens to shares when someone dies or wants to transfer them.

Understanding your company's articles is essential if you own shares, as these rules take legal precedence over your will when determining who inherits your business interests.

What Do Articles of Association Mean?

Under the Companies Act 2006, all registered companies must have articles of association—their constitutional document. These articles form a legally binding contract between the company, shareholders, and directors, governing director powers, voting rights, dividend distribution, and crucially, share transfers. Most small companies use standard "model articles" prescribed by The Companies (Model Articles) Regulations 2008, though businesses can adopt customised versions.

The most critical aspect for estate planning is how articles control share transfers. Many private companies include pre-emption rights requiring shares to be offered to existing shareholders first—even before family members named in your will. When a shareholder dies, legal ownership passes to the executor, but the executor must follow the articles' requirements. Sarah owned 40% of a family printing business. Her will left shares to her daughter Emma, but the articles contained pre-emption rights. When Sarah died, her business partner exercised these rights and purchased the shares for £200,000. Emma received cash instead of the business involvement Sarah intended.

Standard model articles often prove inadequate for succession planning. They automatically remove directors who lose mental capacity, creating succession crises. They lack permitted transfer provisions allowing shares to pass directly to family without pre-emption rights. Business owners should review whether their articles support succession goals or create obstacles. Articles can only be amended by special resolution (75% shareholder approval), with amendments filed at Companies House within 15 days.

Common Questions

"Can articles of association prevent me from leaving my shares to who I want in my will?" Yes, articles of association can restrict how shares are transferred, including after death. Many private companies include pre-emption rights requiring shares to be offered to existing shareholders first, or provisions that automatically transfer shares to specific people. These restrictions override your will, so you should review your articles before making estate planning decisions about company shares.

"What happens if my will conflicts with the company's articles of association?" The articles of association take precedence over your will when it comes to share transfers. If your will leaves shares to someone but the articles require them to be offered to other shareholders first, the executors must follow the articles. This can create complications, delays, and unexpected outcomes, which is why coordination between your will and articles is essential.

"Do I need to change my articles of association before writing my will as a business owner?" Review your articles before writing your will to ensure they align with your succession wishes. Standard model articles may not suit your needs—for example, they might allow share transfers you don't want, or lack provisions for smooth succession if you lose mental capacity. You may need to amend the articles to include permitted transfers to family, cross-option agreements, or other succession planning provisions.

Common Misconceptions

Myth: My will controls what happens to my company shares when I die

Reality: Articles of association take precedence over your will for share transfers. If the articles contain pre-emption rights or restrictions, these apply regardless of your will's instructions. Your executor receives legal ownership but must follow the articles' requirements, which might mean offering shares to existing shareholders at independent valuation first.

Myth: The standard model articles from Companies House are fine for any small company

Reality: Standard model articles rarely suit multi-shareholder companies or family succession planning. They don't include pre-emption rights, lack permitted transfer provisions for family succession, and automatically remove directors who lose mental capacity. Most business owners need customised articles addressing succession planning and continuity provisions.

  • Company Shares: The assets that articles govern, controlling how shares are transferred, valued, and inherited.
  • Shareholders' Agreement: A complementary private contract working alongside articles providing detailed provisions on deadlock, exit, and succession.
  • Pre-emption Rights: The mechanism commonly included in articles requiring shares be offered to existing shareholders before transfer.
  • Limited Company: The business structure legally requiring articles of association as its constitutional foundation.
  • Business Succession Planning: The strategic goal for which properly drafted articles serve as a critical tool.

Need Help with Your Will?

As a business owner, understanding how your articles of association interact with your will is essential for protecting your succession plans. Creating clear, legally binding instructions that work alongside your company's constitutional documents ensures your business interests pass according to your wishes.

Create your will with confidence using WUHLD's guided platform. For just £99.99, you'll get your complete, legally binding will plus three expert guides. Preview your will free before paying anything—no credit card required.

Legal Disclaimer:

This article provides general information only and does not constitute legal or financial advice. WUHLD is not a law firm and does not provide legal advice. Laws and guidance change and their application depends on your circumstances. For advice about your situation, consult a qualified solicitor or regulated professional. Unless stated otherwise, information relates to England and Wales.