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A company’s articles of association are its internal rules and regulations. Amongst other things, they will set out what the company can do, what powers its directors have, how decisions will be made by its directors and shareholders, what rights attach to its shares and how those shares may be transferred. Over time, as the company evolves, it may need to update or change its articles but how should this be done to be effective?

Special resolution

The golden rule is that any change to a company’s articles, or the wholesale adoption of new articles, will require a special resolution of the company’s shareholders.

For a private company, the resolution could be passed by a written resolution circulated to all the shareholders eligible to vote on it. It must then be passed by shareholders representing at least 75% of all the voting rights of those eligible shareholders.

Alternatively, the resolution could be passed at a general meeting of the shareholders (for public companies, this is the only option). The meeting would have to be held on at least 14 clear days’ notice unless the holders of 90% of the shares agree to short notice. At the meeting, if the vote is taken on a show of hands, the resolution would need to be passed by at least 75% of the shareholders present; if the vote was taken on a poll, it would need to be passed by the holders of at least 75% of the total voting rights of all the shareholders who attend and vote at the meeting.

The amendments to the articles of association should be clearly set out in the special resolution. If new articles are being adopted, a copy of the new articles should be circulated with the written resolution or notice of general meeting.

Preliminary board meeting

In order to approve and circulate either a written resolution or a notice of general meeting, it would first be necessary to hold a meeting of the company’s directors. Any specific provisions in the company’s articles relating to the required notice for that meeting must be followed but, if there aren’t any, ‘reasonable notice’ would be required.

Unless the existing articles provide otherwise, the decision of the directors to approve the written resolution or notice of general meeting would be taken by simple majority.

Other consents?

It will be necessary to consider whether any other specific consents are required. For example:

  • If the company has separate classes of shares, will the proposed changes to the articles of association vary the rights attached to any of those classes? If so, separate class consent will be required from the holders of the affected class(es)
  • If the company is party to a shareholders’ or investment agreement, is the consent of a significant shareholder or investor required before the articles can be changed?
  • Is consent required under any other documents to which the company is a party, such as a facility agreement with a bank or any related security arrangements?

Filing requirements

Assuming the special resolution is passed and any other required consents are obtained, it is the special resolution itself which effects the change to the company’s articles. However, that change must then be recorded at Companies House by filing both the special resolution and a copy of the revised articles within 15 days: failure to do this is a criminal offence by both the company and any officer in dealt, punishable by a fine. There’s no fee payable with this filing.

Follow these simple steps to keep your company’s rules up to date and fit for purpose.

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This blog is intended only as a synopsis of certain recent developments. If any matter referred to in this blog is sought to be relied upon, further advice should be obtained.