The Articles of Association form an important part of a company’s constitution, which it is legally required to have under the Companies Act 2006. We’ve already looked at what the articles are and what they contain, and in this article we look at what to do if you need to change the company’s Articles of Association and provide a number of template resolutions to help you make the change.
A company’s articles are not set in stone and a need for change can arise for a number of reasons. As such an important document, it’s essential that the articles contain provisions that are right for the company.
That’s particularly true when the company has more than one director or shareholder, as properly crafted articles serve to protect their respective rights and interests in the company.
It’s worth noting a few restrictions on the company’s ability to change its articles:
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- Any change must be in the genuine best interests of the whole company, not just designed to meet the needs of some members. While this doesn’t mean that every member must agree to a change to the articles, such change cannot be used by a majority to discriminate against the minority or deprive minority shareholders of their statutory rights as shareholders.
- Changes that are retrospectively effective need to be carefully considered to ensure they’re both legal and fair. In particular, Section 25 of the Companies Act 2006 does not allow the company to insert retrospective provisions that require members to increase their shareholdings or provide further funds to the company without the members specific agreement in writing.
- You can’t change the articles to remove the ability to make further changes to them in future. However, there may be conditions attached to making alterations – for example, a contractual arrangement like a shareholders’ agreement may effectively restrict the ways in which the articles can be amended.
- There are more restrictions and procedural requirements for public limited companies and listed companies. The information in this article is aimed at unlisted private limited companies.
Although not a legal restriction, in can be good practice to seek prior confirmation that the proposed new articles are appropriate for your shareholders. For instance, some shareholders, most notably financial institutions, may have particular requirements that will need to be addressed – for example, pre-emption rights. We’ve looked in another article at the types of clauses that shareholders may look for in a company’s articles of association. Wherever possible, it’s sensible to ensure any proposed changes take account of such requirements before entering into the administrative process of amending the articles.
Once a legitimate need to update the articles of association has been identified, this change can be implemented by:
- Amending the wording of one or more clauses in the existing articles
- Adding in new or removing clauses from the existing articles; or
- Adopting an entirely new set of articles (completely replacing the previous set of articles)
Unless the company has just a single director and shareholder, any of these changes require a special resolution to be passed. In another article we look in detail at what’s special about a special resolution: in effect, it means that any changes require the consent of 75% of shareholders rather than a simple majority (if there are multiple share classes, then 75% of each share class must approve the changes). This ensures that a good majority of the members of a company agree to any proposed changes and therefore helps to prevent what may be needless amendments.
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There are two ways in which a special resolution can be passed:
A written resolution to change the articles of association
A written resolution may be easiest where there are only a few shareholders as it avoids the need to call and hold a meeting of all shareholders.
Assuming you have a copy of the articles you’d like to adopt then simply have each shareholder sign the resolution. We’ve created template written special resolutions that you can download and amend for:
- Amending the wording of, adding and/or removing clauses from the existing articles
- Adopting a completely new set of articles
A certified copy of this resolution must be sent by post to Companies House within 15 days of it being signed together with a copy of the new or amended articles.
A special resolution passed at a shareholders’ meeting
In many cases, particularly where there are a lot of shareholders, a written resolution will not be practical. In that case, a special resolution can be discussed at a general meeting – either a planned annual general meeting or, if the changes are required before the next AGM, an extraordinary general meeting.
To get a special resolution passed at a general meeting, the directors of an unlisted private limited company will need to:
- Hold a board meeting and resolve to convene a General Meeting and approve a circular to send to the shareholders. The circular sets out the reasons that the articles need to be changed and should summarise the main provisions/changes in consequence of the new articles. It’s best to include the full text of the new articles or instructions about where they can be viewed.
- Hold the general meeting. The special resolution to amend the articles of association will be passed by a majority of 75% or more.
- The directors note that the special resolution has been passed and resolve to send a copy to Companies House alongside the new articles.
- A certified copy of the special resolution must be sent by post to Companies House within 15 days of the general meeting. You can adapt and use one of the templates we’ve created and send it alongside a copy of the new or amended articles:
- Copies of the new or amended articles incorporating a copy of the special resolution should be sent to interested parties including as a minimum the directors and auditors. It is good practice but not obligatory to send copies to the shareholders too.
Whichever method is chosen, the new articles are deemed to take effect once the special resolution has been passed.
While the administrative procedure for amending the company’s articles need not be complex, it does take time and effort on the part of the company. Input from shareholders is required, and frequently asking them for approval to amend the articles can make the company look unprofessional. For these reasons, it’s a good idea to conduct a regular review of the company’s constitution so that all required changes can be made in one go rather than in a piecemeal fashion. An annual review of the articles, for example, might be timed so that any necessary changes can be proposed in advance of and passed via a special resolution at the company’s annual general meeting.
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