A company’s Articles of Association form the basis of the company’s constitution. They’re commonly referred to as the internal rule book of the company. The articles are chosen by its members and are legally binding on the company and its members. A company’s articles are subject to the Companies Act 2006 and can’t contain rules that would cause the company or its directors to operate outside the law.

A company can choose to adopt:

• model articles in their entirety
• model articles with additional or amended provisions, or
• bespoke articles

When a shareholder dies, their shares will form part of their estate and ultimately pass to their heirs under the terms of their will or the laws of intestacy where they haven’t made one. But equally, a company’s articles are likely to contain rules about the transferability of shares.

The Companies Act 2006 says: ‘The shares or other interest of any member in a company are transferable in accordance with the company’s articles.’

If the articles are silent on the transferability of shares, the model articles will come into play. Section 27 of the model articles regulations says: ‘A transmittee who produces such evidence of entitlement to shares as the directors may properly require — (a) may, subject to the Articles, choose either to become the holder of those shares or to have them transferred to another person, and (b) subject to the articles, and pending any transfer of the shares to another person, has the same rights as the holder had.’