© 2025 by Michael Firth KC, Gray's Inn Tax Chambers
Contact: michael.firth@taxbar.com
Articles of association
Nature of articles​​
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- Binds company and members
(1)The provisions of a company's constitution bind the company and its members to the same extent as if there were covenants on the part of the company and of each member to observe those provisions.
(2)Money payable by a member to the company under its constitution is a debt due from him to the company.
In England and Wales and Northern Ireland it is of the nature of an ordinary contract debt." (CA 2006, s.33)
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- A species of contract
"[51] Finally in the present context, it is helpful to consider the judgment of the Court of Appeal in Fulham Football Club (1987) Ltd v Richards [2011] EWCA Civ 855. In that case, the articles of association of the FA Premier League Ltd required the members to comply with the rules of the Football Association. In deciding that claims brought in relation to the conduct of the chairman of FA Premier League Ltd in alleged breach of those rules were arbitrable, Patten LJ characterised the claim for relief for an alleged breach of the articles of association in a way which is wholly inconsistent from the suggestion that the obligations in issue stand on a different, and higher, legal plane from obligations under a shareholders' agreement. At [77], he observed that:
"A dispute between members of a company or between shareholders and the board about alleged breaches of the articles of association or a shareholders' agreement is an essentially contractual dispute which does not necessarily engage the rights of creditors or impinge on any statutory safeguards imposed for the benefit of third parties."" (NDK v. Huo Holding Limited [2022] EWHC 1682 (Comm), Foxton J)
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"[71] The articles of association of a company are a species of contract between its members (Companies Act 1985 section 14, Companies Act 2006 section 33). They can be amended by agreement (Companies Act 2006, section 21). That agreement may be reached informally (Cane v Jones [1980] 1 WLR 1451)." (Re The Sherlock Holmes International Society Ltd [2016] EWHC 1076 (Ch), Mark Anderson QC)
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- Articles not automatically binding between company and director in personal capacity
"[30] The articles of association of a company are as a result of statute a contract between the members of a company and the company in relation to their membership. The articles are not automatically binding as between a company and its officers as such. In so far as the articles are applicable to the relationship between a company and its officers, the articles may be expressly or impliedly incorporated in the contract between the company and a director. They will be so incorporated if the director accepts appointment 'on the footing of the Articles,' and relatively little may be required to incorporate the articles by implication: per Ferris J at para [26] of his judgment.
[31] In the present case I have no evidence as to the basis on which Mr Hall accepted his appointment as director of the company. Neither the articles of association of the company in general nor art 18 in particular are referred to in his witness statements. As far as I can see from the notes of the hearing before Master Foster, art 18 was not referred to, let alone relied upon. There is nothing to suggest that Mr Hall knew of art 18, or indeed that there might be relevant provisions in the constitution of the company, when he accepted his appointment, and given his total lack of experience or knowledge as to commercial matters he may have been ignorant of their existence. There is, it seems to me therefore, a real issue as to the incorporation of art 18 into any contract between Mr Hall and the company." (Globalink Telecommunications Ltd v. Wilmbury Ltd [2002] EWHC 1988 (QB), Burton J - different if director is also a shareholder - see above in Re Richmond Gate)
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Approach to construction
"[16] Before discussing in greater detail the reasoning of the Court of Appeal, the Board will make some general observations about the process of implication. The court has no power to improve upon the instrument which it is called upon to construe, whether it be a contract, a statute or articles of association. It cannot introduce terms to make it fairer or more reasonable. It is concerned only to discover what the instrument means. However, that meaning is not necessarily or always what the authors or parties to the document would have intended. It is the meaning which the instrument would convey to a reasonable person having all the background knowledge which would reasonably be available to the audience to whom the instrument is addressed: see Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896, 912-913. It is this objective meaning which is conventionally called the intention of the parties, or the intention of Parliament, or the intention of whatever person or body was or is deemed to have been the author of the instrument.
[17] The question of implication arises when the instrument does not expressly provide for what is to happen when some event occurs. The most usual inference in such a case is that nothing is to happen. If the parties had intended something to happen, the instrument would have said so. Otherwise, the express provisions of the instrument are to continue to operate undisturbed. If the event has caused loss to one or other of the parties, the loss lies where it falls.
[18] In some cases, however, the reasonable addressee would understand the instrument to mean something else. He would consider that the only meaning consistent with the other provisions of the instrument, read against the relevant background, is that something is to happen. The event in question is to affect the rights of the parties. The instrument may not have expressly said so, but this is what it must mean. In such a case, it is said that the court implies a term as to what will happen if the event in question occurs. But the implication of the term is not an addition to the instrument. It only spells out what the instrument means." (AG of Belize v. Belize Telecom Ltd [2009] UKPC 10, Lord Hoffmann)
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- Take account of shareholders' agreement
"[50] For that reason, when construing the articles, the court will generally be willing to have regard to the terms of a shareholders' agreement to which all present and future shareholders are required to be parties. In McKillen v Misland (Cyprus) Investments Ltd [2011] EWHC 3466, [69], David Richards J commented that in such circumstances "it is somewhat artificial to construe the articles in isolation from the shareholders' agreement and from the background admissible to the construction of that agreement. Nor would it conflict with the reasons for the usual exclusionary rule to take account of the shareholders' agreement and its background". Phillips J observed in United Company Rusal plc v Crispian Investments Ltd [2018] EWHC 2415, [50] of the position considered in McKillen that "the shareholders' agreement was effectively synonymous with the articles and performed the same or a similar function"." (NDK v. Huo Holding Limited [2022] EWHC 1682 (Comm), Foxton J)
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Cannot be rectified
"It seems to us that there is no room in the case of a company incorporated under the appropriate statute or statutes for the application to either the memorandum or articles of association of the principles upon which a Court of Equity permits rectification of documents whether inter partes or not...
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The powers to alter and extend are purely statutory and there is no hint in the 1929 Act of any power to rectify; and this applies also to the 1908 Act. It is quite true that in the case of the rectification of a document, such as a deed inter partes, or a deed poll, the order for rectification does not order an alteration of the document; it merely directs that it be made to accord with the form in which it ought originally to have been executed. This cannot be the case with regard to the memorandum and articles of association of a company, for it is the document in its actual form that is delivered to the Registrar and is retained and registered by him, and it is that form and no other that constitutes the charter of the company and becomes binding on it and its members. The legal entity only comes into existence as a corporate body, distinct from the subscribers to the memorandum and articles registered, upon registration. (See ss. 14, 15, 16 and 17 of the 1908 Act, and ss. 12, 13, 15 and 20 of the 1929 Act.) In all cases any change in the name or constitution of the company must be registered with the Registrar. In some cases the alteration is not effective until it is registered; for example, in the case of the change of name of a company (see s. 19 of the 1929 Act), or in the case of a reduction of capital (see ss. 55 and 58 of the 1929 Act); while in other cases the failure to register is made an offence punishable by fine...
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Further the effect of registration of the memorandum and articles of a company under s. 14 of the 1929 Act is to bind the company (which, as already stated, only comes into existence after the registration is effected) and the members thereof to the same extent and in the same manner as if they had respectively been signed and sealed by each member and contained covenants on the part of each member, his heirs, executors and administrators to observe all the provisions of the memorandum and of the articles subject to the provisions of the Act. It seems plain that this section does not admit of any rectification of the memorandum and articles apart from alterations under the express powers of the Act, for the only contract is a statutory contract in which the Company is included by reference to the registered documents and to no other documents. Further, as Bennett J. pointed out, there is no machinery in the 1908 Act, nor is there in the 1929 Act, for compelling the Registrar to register any rectification of the memorandum or articles if the Court should think fit to make such an order." (Scott v Frank F Scott (London) Limited [1940] Ch 794)
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"[48]...iii) Whereas a shareholders' agreement can be rectified, the articles of association cannot (Scott v Frank F Scott (London) Limited [1940] Ch 794)." (NDK v. Huo Holding Limited [2022] EWHC 1682 (Comm), Foxton J)
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