What are a Company's Articles of Association?
This document, along with the typically smaller and more specific Memorandum of Association, is the Company's constitutional document. It is the rule book for the Company and governs most aspects of the Company's operations, extending to such matters as the conduct of directors, decision taking, voting, administrative procedures, share transfers, and so on.
Why are Articles of Association important?
It is important as it governs how a company's affairs are managed. If the provisions are not respected, then claims can be brought against the directors or injunctions can be sought to prevent potentially infringing activities. In this regard it is the ultimate point of reference for such matters. If the provisions are no longer relevant, or are too restrictive, or too slack, then changes need to be made.
I formed my company many years ago and I'm not certain that I have Articles of Association. How do I check?
Every limited company formed in England and Wales will have a constitution of some description. Copies of the constitution for almost all companies are available to the public from Companies House. Many are available free of charge, and will be included within the incorporation documents. If there have been changes since incorporation then these should be available for view within the company's filing record.
Are Companies House documents definitive then?
Not necessarily. Although a company is required to file any changes to its constitution at Companies House, many do not do so, or do this with a significant delay. So it is worth checking with the actual company involved to see if it has made any changes to the original document. If it has, then failing to file the new document will not, in most cases, invalidate it and the most recent version will be the operative one.
I have checked the incorporation document and it does not include the Articles of Association
You should check again. It might say something like "Model Articles adopted without amendment".
What are the Model Articles?
This is a standard form of Articles of Association as set out in statute which, at the time of enactment, lawmakers believed to be appropriate for most companies as a "one size fits (almost) all". Prior to the Model Articles was "Table A", which many companies still refer to today. Very often a company will adopt the Model Articles in part, and adopt a bespoke document to deal with specific issues not included in the Model Articles.
Why would a company not want to use the Model Articles in full?
Many areas of a company's operation are specific to that individual company and are not properly catered for by a standard document. For example, the Model Articles do not place specific restrictions on share transfers. But a common amendment is to include "pre-emption rights", which would give existing shareholders the right of first refusal to participate in a share transfer before those shares are offered to a third party. This is common in small companies, particularly those owned and run by family members.
What other changes can be introduced?
Another popular change is to create different "classes" or types of shares. A separate share class might contain different entitlements to vote or to receive a dividend, or indeed restrict or permit share transfers. There are numerous possibilities.
It sounds like I need to update my Company's Articles of Association. How easy is it?
That depends on if your fellow shareholders agree with you. The requirements of the Companies Act are that a special resolution is required, which effectively means shareholders representing 75% of the voting shares must approve the changes. If you can muster this level of support, then a special resolution can be passed to adopt a new constitution.
The Company & Commercial Team
at Pinney Talfourd are particularly skilled in creating new constitutions, and can advise and suggest the types of provisions that are sensible to include, deal with the shareholder communications, as well as informing Companies House of the changes.
This article was written by Edward Garston, Senior Associate in the Commercial Team at Pinney Talfourd LLP Solicitors. The contents of this article are for the purposes of general awareness only. They do not purport to constitute legal or professional advice. Specific legal advice should be taken on each individual matter. This article is based on the law as of March 2019.