The articles of association regulate the internal workings of a company and must be complied with at all times. This governing document is not, however, set in stone. It is entirely possible, and indeed commonplace, to amend a company’s articles of association at some point after incorporation to reflect the evolving needs of the business.
Whether you wish to change certain wording, add or remove specific provisions, or replace your existing articles of association with an entirely new set of bespoke articles, you will need to obtain shareholder approval and notify Companies House of the changes that have been made.
Pass a special resolution to change the articles of association
As per section 283 of the Companies Act 2006, you can alter the articles of association by passing a special resolution of the shareholders, provided there is a legitimate reason for making such changes. This type of resolution requires a majority of at least 75% of the total shareholder votes and it can be passed in one of two ways:
- As a written resolution that is signed by the shareholders
- By casting votes at a general meeting of the shareholders
A written resolution is often the quickest and most convenient option for smaller companies because there is no need to arrange and attend a general meeting, which can be time consuming. Each shareholder will simply be provided with a copy of the updated articles to review. If the shareholders are happy with the changes, they will provide their approval by signing the resolution.
The special resolution should be delivered to Companies House within 15 days of the written resolution, together with a copy of the new articles of association.
When a written resolution is unsuitable, which is often the case when companies have multiple shareholders, you can change the articles by passing a special resolution at a general meeting. There are a number of steps required to pass a special resolution in this way:
- The company director(s) will call a general meeting, either of their own volition or upon receiving requests from members holding at least 5% of the company’s paid up shares
- The director(s) will send notice of the meeting to all shareholders at least 14 days in advance, stating the time, date, place, and purpose of the meeting
- The shareholders will attend the general meeting, discuss the proposed changes to the resolution, and provide their votes by way of a poll or show of hands
- If a majority of at least 75% of the voting shares are cast in favour of the proposed changes, the resolution is passed
- The directors note that a special resolution has been passed and agree to send a copy of the amended articles to Companies House
- The directors will send a certified copy of the special resolution to Companies House, accompanied by a copy of the amended articles, within 15 days of the date of the general meeting
- Copies of the amended articles and special resolution should be sent to every director and the company auditor (if applicable)
- The company must retain minutes of the meeting and a copy of the resolution for its records
Whether the company chooses to distribute a written resolution or call a general meeting for the purpose of changing the articles of association, the amended articles will take effect as soon as the special resolution has been passed.
It should be noted that, in some limited circumstances, a company may have parts of its articles that are ‘entrenched’. These entrenched sections can only be amended through a percentage higher than the standard 75% – often this will be set at 100%, i.e. by unanimous agreement of the company’s shareholders. If any sections of the company’s articles are entrenched, they will need to attain this higher percentage to be able to modify them.
Why would I need to alter the articles of association?
There are many reasons why a company may need or want to alter its articles of association, ranging from internal management requirements to changes in legislation. Most UK companies adopt the default Model articles when they are incorporated at Companies House. This standardised set of articles provides a suitable foundation for many companies when they are starting out. Over time, however, it may be beneficial or necessary to alter certain provisions, or create bespoke articles, to suit the particular needs of your company as it grows.
1. To replace Table A articles
Table A is the earlier default form of articles used by limited companies incorporated before 1 October 2009 under the Companies Act 1985. These articles contain a lot of legalese and are quite restrictive and complex; therefore, many older companies chose to replace Table A articles with the newer Model articles.
Prescribed by the Companies Act 2006, the Model articles were introduced to ease the company formation process and minimise the administrative burden placed on companies. Aside from being consistent with current company law, the provisions in the Model articles offer greater flexibility and are much easier to amend.
2. To increase shareholder protection
Companies with more than one shareholder can benefit from including specific provisions in their articles that restrict the transfer of shares, including pre-emption rights, permitted transfers, compulsory transfer clauses, drag-along rights, and cross-option agreements. These types of provisions will provide better protection to shareholders, minimise internal disruption, prevent hostile takeovers, and ensure clear procedures are in place for a range of eventualities, such as resignation, retirement, or the death of a shareholder.
3. To issue multiple share classes
Whilst having only one share class may be easier to manage, it is not a practical option for all companies. The Model articles do not support multiple share classes; therefore, if you wish to issue any class of share other than ‘ordinary’, you will need to alter your articles of association accordingly.
4. To remove an authorised share capital
Authorised share capital is a provision that restricts the number and value of shares that a company can issue. Previously a statutory requirement under the Companies Act 1985 and Table A articles, the requirement for an authorised share capital was abolished on 1 October 2009 when the Companies Act 2006 came into force. Companies formed under the old Act retain the authorised share capital unless they choose to remove it, making use of the fact it is no longer compulsory.
Conversely, companies formed following the introduction of the 2006 Act might choose to voluntarily insert an authorised share capital into their articles by making the necessary amendments.
5. To tailor internal administrative arrangements
Under the Model articles of association, there is no requirement for private companies to appoint a company secretary or hold annual general meetings. The articles also prescribe strict rules on the decision-making powers of directors, the voting rights of shareholders, the required percentage of votes to pass a resolution, the payment of dividends, the appointment and removal of directors, and many other administrative arrangements that impact the way in which a company can operate.
If you find that any provisions in the Model articles are restrictive or unsuitable for the particular needs of your company, it would be beneficial to tailor them accordingly.
Review your articles regularly
It is good practice to review your company’s articles of association on a regular basis to ensure the provisions are appropriate for the business, protect the rights and interests of all shareholders, and remain consistent with the company’s evolving corporate structure and governance. Articles that are fit for purpose will help you to manage your company effectively and avoid disputes and invalid decisions. Before making any changes to your articles, we would advise seeking professional legal advice from a specialist business solicitor.
Looking to adopt a new set of Articles? Quality Company Formations can provide you with all the backing documentation you need, including Special Resolution and Board Minutes, to get your articles adopted. Speak to us today by calling 020 3984 5389 or email firstname.lastname@example.org.