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If you own or otherwise manage a company, you probably know that the articles of association act like the company rulebook. The articles of association, or articles, primarily lay down the rules directors must follow when managing the company. The articles may also specify which company matters are for the shareholders to vote on. These rules cover a wide range of governance issues, from the powers and responsibilities of directors to the procedures for calling and conducting meetings. Given the fundamental importance of the articles, companies may, from time to time, wish to change their articles to reflect their evolving needs and circumstances better. This article will discuss the general procedure for changing your company’s articles of association and specific relevant considerations.
What Are Articles of Association?
All companies must have articles of association. Articles of association come in three main forms, including:
- unamended model articles of association;
- amended model articles of association; and
- bespoke articles of association, also called tailored articles.
Unamended Model Articles of Association
The model articles of association are generic articles of association that apply in default of a company choosing to adopt bespoke articles or otherwise amend the model articles. They are designed to suit most companies, especially small ones.
Amended Model Articles of Association
Alternatively, companies may wish to amend certain of the model articles to suit their purposes. For instance, many companies disapprove of Model Article 14, which limits the director’s ability to vote on matters in which they may have a conflict of interest. Where a company broadly has the model articles but has made minor amendments or variations, these are amended articles of association.
Bespoke Articles of Association
Finally, larger companies and companies incorporated with the help of a law firm may adopt bespoke articles suited to their own particular needs and objectives.
When Should I Change My Company’s Articles?
Suppose you find a term in the articles that prohibits your company or its directors from undertaking specific actions as the company otherwise wishes. In that case, you may amend the articles. Again, Model Article 14 is an excellent example of this. In its unamended state, any director with any interest in a particular matter put to the board is not eligible to vote unless they obtain the consent of the shareholders through an ordinary resolution.
In practice, this is a cumbersome restraint on the directors, especially for small companies where directors and shareholders are the same. Therefore, all the directors/shareholders (being the same) may choose to amend the articles to disapply Model Article 14.
Likewise, you can implement a bespoke rule in your articles. For instance, if you want to create a new class of shares with special rights attached to them, you typically need to amend your articles to this effect.
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What Limits Are There on Changing My Company’s Articles?
A company is generally free to amend its articles as it sees fit. Therefore, in principle, nothing stops a company from amending its articles to require the directors to sing a song or perform a dance before every board meeting.
However, there are certain matters that company law prevents a company’s articles from interfering with. In brief, a company cannot amend its articles in any way that interferes with the:
- power of shareholders to change articles by special resolution;
- notice period for a general meeting of the shareholders or the quorum;
- power of shareholders to pass written resolutions; or
- requisite threshold for removing directors.
In particular, the power of the shareholders to change articles by special resolution is essential to consider. Company law is clear that a special resolution of the shareholders must pass all amendments to the articles. Special resolutions require eligible shareholders to cast at least 75% of their votes in favour.
If your company tries to amend its articles with any provision that interferes with this fundamental company law matter, the articles have no legal effect. In practice, any shareholder could claim against the company in court. If successful, the court can intervene to unwind any effect from the improper article.
What is the Process for Changing My Company’s Articles?
In short, shareholders must pass a special resolution to change the company’s articles. Generally, shareholders and directors can propose resolutions to amend the company’s articles. As it is more common for directors to propose resolutions, below is a generic procedure plan for amending a company’s articles.
Generic Procedure Plan to Amend a Company’s Articles
Firstly, the directors must convene a board meeting and provide appropriate notice. The director must obtain a quorum to approve the proposal and submit a resolution to the shareholders to amend the company’s articles.
At the meeting, the board must agree to the resolution’s wording and present it to the shareholders. In most cases, this requires a simple majority of the board. However, your company’s articles may specify something different.
Thirdly, the board must vote to convene the shareholders’ meeting by giving reasonable notice. Alternatively, they can propose the amendment via a written resolution. This does not require a general meeting.
However, the shareholders must pass the resolution by a special resolution, which requires at least 75% of eligible votes in favour of the resolution. As directors, you must comply with the proper procedures for giving notice of the meeting or circulating the written resolution.
Finally, the directors should convene a second board meeting if the shareholders pass the resolution by at least 75% of votes. At the meeting, they should propose further resolutions to amend the articles. Likewise, they should undertake to send the relevant documents to Companies House to comply with their reporting obligations. These documents include copies of the special resolutions.
This template helps you document important and major decisions or actions reached in board meetings.
Key Takeaways
The articles of association, or simply articles, govern how the company is managed. The articles also specify which company matters are for the shareholders to vote on. Given the fundamental importance of the articles, companies may, from time to time, wish to change their articles. All articles require the approval of at least 75% of the eligible shareholders. Furthermore, all companies should comply with the formal requirements when proposing and passing any resolution to amend the company articles. Additionally, it is crucial to ensure that any amendments do not interfere with fundamental company law matters, as such changes would be legally ineffective.
If you need help drafting your articles of association, our experienced corporate lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today at 0808 196 8584 or visit our membership page.
Frequently Asked Questions
You can think of a company’s articles of association as a rule book that sets out who has the authority to do certain things like entering into transactions. Articles of association are the most important constitutional document for each company.
You can search for any company registered in the UK on Companies House’s website, and the company’s articles will be available to download.
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