Amending the Articles of Association
Your articles of association regulate how your company is run, they must be complied with at all times. However, they are not set in stone. If you find that your business needs have changed from when you first started out, you can amend the articles of association to reflect this.
How do I make amendments?
As per the Companies Act 2006, you can amend the articles of association via a special resolution, this is providing you have a legitimate reason for changing them. This type of resolution requires a majority vote of 75% and can be cast as either a written vote or during a general meeting.
Whichever method is chosen, the amended articles will take effect as soon as the special resolution has been passed.
Beware, however, that in some circumstances, a company may have parts of its articles that are 'entrenched'. These entrenched articles can only be amended through a percentage that is higher than the standard 75% of votes. For example, it may require a unanimous agreement of the company's members.
Why would I need to make amendments?
There is a myriad of reasons why you might want to amend your articles of association, from internal management requirements to changes in legislation.
When most UK companies incorporate they opt to use the Model Articles, which is a standard set of articles that provide a suitable foundation for many companies. However, over time, it may be necessary to alter certain provisions, or create bespoke articles, to suit the particular needs of your company.
So let’s look in more depth at some of the changes you can make to your articles of association.
Replace Table A articles
If your company was incorporated on or before 1st October 2009, then you were incorporated under the Companies Act 1985. A part of this Act was the Table A articles which contain a lot of legalese while being restrictive and complex. Because of this, many older companies choose to replace Table A articles with newer Model articles.
Aside from being consistent with current company law, the Model articles can give greater flexibility and are easier to amend.
Increase shareholder protection
Companies with more than one shareholder can benefit from including specific provisions which restrict share transfers, include pre-emption rights, and more. These provisions can provide better protection to the shareholders, minimise internal disruption, prevent hostile takeovers, and ensures that clear procedures are in place for a range of eventualities.
Issue multiple share classes
While having one share class is better for most companies, it's not always the case. The Model articles do not support multiple share classes. Therefore, if you need to issue anything other than "Ordinary" shares, you will need to amend your articles of association accordingly.
Internal administrative arrangements
The Model articles don't have a requirement for private companies to appoint a company secretary or hold annual general meetings (AGMs). The articles can also have strict rules in regards to the decision-making capability of directors, the voting rights of shareholders, the required percentage of votes required for making a resolution, etc.
If you find that these provisions are too restrictive for your company, it can be beneficial to have them amended.
Review your articles regularly
It's good practice to review your articles of association regularly to ensure they are appropriate for your business practices.
Articles that are fit for purpose will help you to manage your company effectively and avoid disputes and invalid decisions. However, it can be worth seeking professional legal advice before embarking on amending your articles of association.