Companies grow and evolve over time, and as a result, their articles of association may no longer be suitable or relevant for their needs. Changes may be required at any point during the lifespan of the company to reflect changes in the law, acquiesce to requests by courts or regulators, and support internal developments and new priorities within the business.
Amendments to articles of association cannot simply be made arbitrarily, however; they must be made by following the correct procedure in accordance with the Companies Act 2006, which includes passing a special company resolution and filing the necessary paperwork with Companies House. In this article, we will outline why companies may need to amend their Articles of Association, the exceptions that apply, and the correct procedure for amending articles.
What are Articles of Association?
A company’s articles of association is a constitutional document that is drafted and filed when a company is incorporated in accordance with the requirements of the Companies Act 2006 (CA 2006). Articles of association are used as a way of capturing details about how the company will be run and form the basis of a statutory contract between a) members and b) members and the company.
The content of a company’s articles varies depending on the type of company and the preferences of the directors. The articles of association for a private company limited by shares, for example, may include specific rules on making unanimous decisions, calling a director’s meeting, casting votes, keeping records of decisions, appointing directors, and the number of directors.
Making an amendment to the Articles of Association
In accordance with the CA 2006, there are several steps involved in amending a company’s articles of association as follows:
Step 1) Passing a special resolution
Before amendments can be made to a company’s articles, section 21(1) of the CA 2006 stipulates that a special resolution must be passed. A special resolution requires at least 75% of the votes cast by shareholders in order to pass. This may be done by either passing a written resolution on the proposed changes (i.e. all done in writing without the need for a general meeting) or during a general meeting. Because written resolutions do not require the arrangement of a general meeting, this is typically the easiest and fastest way to make changes to a company’s articles of association.
To pass a special resolution at a general meeting, the following steps must be taken:
- A notice of a general meeting must be prepared and circulated by the company directors no less than 14 days before the meeting with the time, date, location, and proposed changes.
- The proposed changes are discussed at the general meeting
- Members vote by taking a poll or a show of hands
- The special resolution will be passed if 75% or more of the votes are in favour of the amendments
- Minutes of the meeting and a copy of the resolution must be kept by the company
To pass a written resolution, the following steps must be taken:
- Prepare a written / special resolution outlining the proposed changes. This document must also clearly explain how voters can signify their agreement (i.e. sign and return the written resolution) and the deadline for doing so.
- Circulate the written resolution document as a hard copy, electronically, or by placing it on a website – and make this available to all shareholders
- The written special resolution will be passed if 75% or more of the votes are in favour of the amendments
- A copy of the resolution must be kept by the company
Step 2) Submit the passed special resolution to Companies House
Once passed, the special resolution for the proposed changes and the updated articles of association must be sent to Companies House. You may also need to prepare and submit an additional form depending on the changes being made:
- Form CC04 if notifying Companies House about the change of a company’s objects (i.e. what your company does as a business).
- Form CC05 if notifying Companies House of a change that is required due to a change in the law
- Form CC06 if notifying Companies House of a change ordered by a court or another authority.
The rules state that you must send:
- a copy of the passed special resolution within 15 days of it being passed
- a copy of the amended articles of association within 15 days of them taking effect
- any additional forms, if required, within 15 days of the changes to the articles.
All documents and forms relating to changes to articles for companies in England or Wales should be sent to:
Registrar of Companies (England and Wales)
DX 33050 Cardiff
Note – a different address is used for companies in Scotland or Northern Ireland.
It is also important to note that if you do not submit your new articles and the required documents/forms to Companies House within the required 15-day deadline, this constitutes an offence, not only by the company but also by its directors. This may result in a fine being levied by Companies House.
Why might changes be required to articles of association?
Changes to articles may be required to reflect changes in how members wish to run a company. This might include changes that increase shareholder protection (e.g. to prevent the possibility of a hostile takeover) by adding clarifications and amendments regarding how shares can be transferred in the future. Amendments to articles are also often needed to:
- change a company name
- attract new investors – e.g. by changing how investors can realise the value of their shares
- change the type of company – e.g. from a public limited company to a private limited company
- add more share classes (e.g. Non-voting shares, redeemable shares, preference shares, management shares, freezer shares, and growth shares)
- authorised share capital – the maximum share capital that a company is authorised by its constitutional documents to issue to its shareholders.
- replace restrictive elements contained with model articles (e.g. the decision-making powers of directors)
- removal of “Table A” articles. “Table A” was the prescribed format for articles of association of a company limited by shares under the older Companies Act 1985 and before. At the time, companies that were limited by shares did not need to file articles during the incorporation process if they used ‘Table A’.
- comply with changes in the law that mean a company’s constitution is no longer legal
- make changes that are ordered by the courts or a regulating authority (e.g. the Financial Conduct Authority or the Charity Commission).
- improve the language or style of the articles of association,
- align with other companies within a group following an acquisition or merger
It is important to be aware that are some exceptions which prevent the amendment of a company’s articles of association. For example, under section 25 of the CA 2006, a company’s articles cannot be amended if they require a member to “(a) take or subscribe for more shares than the number held by him at the date on which the alteration is made, or (b)in any way increases his liability as at that date to contribute to the company’s share capital or otherwise to pay money to the company”.
In addition, if certain provisions are “entrenched” within the articles, a higher vote count may be required to pass the necessary amendment (typically 100% rather than 75%). Section 22(1) of the CA 2006 states, “A company’s articles may contain provision (“provision for entrenchment”) to the effect that specified provisions of the articles may be amended or repealed only if conditions are met, or procedures are complied with, that are more restrictive than those applicable in the case of a special resolution”.
It is commonplace for UK companies to make changes to their articles of association during their lifespan. These changes may reflect changes in how the directors want to run the company or may be enforced by external factors such as legal changes, external regulators, or the courts. In some cases, it may simply be that a company’s articles are decades old and now need to be brought into line with modern best practice.
Making changes to articles is a relatively straightforward process, but for these to be valid, the correct process, as outlined in this article, must be followed. By passing an ordinary resolution in the proper manner, keeping records of the decision made by members, and filing the necessary paperwork with Companies House within the required time scale, you can be assured that your amendments will be correctly applied in accordance with the law.