An Article of Association form is a significant part of a company’s make-up, and is officially required for a company to have under the Companies Act 2006. We have, before now considered what the articles are, as well as what they contain. In this article, we consider what needs to be done should you demand to modify the company’s Articles of Association and provide several resolutions to assist you when making the adjustment.
When the articles of a company are not set in stone, the need for modifications can occur for several reasons. Being a vital document, it is important that the articles have provisions that are appropriate for the company. This is correct whenever the company has more than one shareholder or director, because suitably written articles serve to safeguard their individual interests and rights in the company.
It is important to note some limitations on the ability of the company to modify its articles:
- Any change needs to be in the original best interests of the entire company, not just intended to meet the specifications of a few members. While this does not imply that each member will have to agree to the modifications, such modifications cannot be utilised by the majority to distinguish against the minority or rob minority shareholders of their constitutional rights.
- Modifications that are effective in retrospect need to be cautiously checked to make sure they are both fair and legal. Particularly, section 25 of the Companies House Act 2006 never permits the company to put in conservative provisions that necessitate members to raise their shareholdings or offer additional funds to the company without the member’s actual agreement in writing.
- The articles can be modified to remove the ability to make additional modifications to them later on. On the other hand, there may be circumstances attached to making adjustments. For instance, a contractual plan like a shareholders’ conformity may efficiently limit the procedures wherein the articles can be modified. There exist more limitations and technical specifications for listed companies and public limited companies.
Even though it is not a legal confinement, it can be a good practice to search for prior validation that the intended new articles are correct for your shareholders. For example, particularly financial institutions may possess exact specifications that will need to be addressed such as pre-emption rights.
Where possible, it is reasonable to make sure any intended modifications take account of such specifications prior to entering into the organisational process of modifying the articles.
As soon as the lawful need to upgrade the articles of association has been spotted, this modification can be carried out by:
- Modifying the wording of at least one section in the current articles
- Incorporating new and removing old sections from the current articles or
- Implementing a completely new article set
If the business has only one shareholder and director, any of these modifications may require an exceptional resolution to be passed. In effect, it implies that any modifications require the approval of 75% of shareholders instead of a simple majority (should there be several share classes, then 75% of every share class should approve the modifications). This guarantees that a reasonable majority of the company’s members consent to any intended modifications and thus assists to put off what may be unnecessary adjustments.
There are two ways through which a particular resolution can be passed:
- A printed decree to modify the articles of association
- A printed resolution may be more convenient where there are only some subscribers as it circumvents the need to call and hold a meeting of all subscribers.
Should you have a copy of the articles you want to implement, then all you need do is to have the resolution signed by an individual shareholder. A verified copy of this should be forwarded to Companies House within 15 days of it being signed, plus a copy of the new or modified articles.
In most cases, especially where there are several shareholders, a printed resolution will not be realistic. In that case, a special resolution can be talked about at any general meeting – either a designed AGM or, should the changes be needed before the subsequent AGM, a special general meeting.
To have a special resolution passed at any general meeting, the directors of an unlisted private company limited should:
- Arrange a board meeting and decide to convene a General Meeting and endorse a circular to forward to the subscribers. The circular provides the details for the need to modify the article and should sum up the major changes/provisions in result of the new articles. It is ideal to add the full text of the new articles or guidelines in regards to where they can be viewed.
- Hold the general meeting. The special resolution to modify the articles of association will be approved by a majority of at least 75%.
- The directors should be noted that the special resolution has been approved and decided to forward a copy to Companies House together with the new articles.
- An approved copy of the special resolution should be forwarded to Companies House within 15 days of the general meeting.
- Provide a resolution wherein the wording of current articles has been modified, or sections have been added or removed from the present articles
- Provide a resolution wherein a totally new set of articles have been implemented
- Provide duplicates of the new or modified articles, including a copy of the special resolution. This must be forwarded to interested individuals including the auditors and directors. It is a good practice – however, not compulsory – to forward copies to the shareholders as well.
Whatever method selected, the new articles are considered to take effect once the special resolution has been approved.
If you would like to discuss Your Company Formations services please don’t hesitate to get in touch with our team today.