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Company Law: Altering a Company's Articles of Association

Wednesday, 4 April 2012

Companies are legally required to have Articles of Association under the Companies Act 2006. For companies formed before 1 October 2009, the Articles along with a Memorandum of Association formed the constitution of a company. Since 1 October 2009, a Memorandum of Association is no longer part of the constitution (although it is still a requirement on incorporation).

A company's Articles cover a variety of different topics such as the issuing of shares, the rights attached to classes of shares and the holding of board meetings. In that sense they form the basic framework within which the founding parties wish to conduct the business of the company. It is important therefore that these ground rules retain an appropriate degree of stability once the business of the company is established.

Section 21 of the Companies Act 2006

Section 21 of the Companies Act 2006 provides that a company may alter its Articles with a special resolution of the shareholders. A special resolution requires at least 75% of a company's members to vote in favour for it to pass. This ensures that a substantial majority of a company's owners agree to proposed changes and prevents amendments from being made unnecessarily. The ability to alter the Articles under section 21 cannot be excluded in the Articles or otherwise but conditions can be attached to alterations by contractual means such as a shareholders' agreement.

The Procedure

Notice of intention to alter the Articles must be sent to all members of the company. A copy of the resolution must also be filed with the Registrar. Once an amendment has been passed, a copy of the amended or new Articles, signed by an officer of the company, must be filed with the Registrar within 15 days.

Restraints on Alterations

Companies need to bear in mind the requirement that any changes to the Articles must be consistent with the Memorandum. Specific procedural requirements regarding changes to particular classes of shares must also be considered.

Alterations must be in the bona fide best interests of the company as a whole. This does not mean that every member has to agree to an amendment. It means that the majority cannot make an amendment if it discriminates against the minority and gives the majority an advantage denied to the minority. Amendments cannot attempt to deprive minority shareholders of their statutory rights.

Although retrospective alterations are generally accepted, Section 25 of the Companies Act 2006 specifically prevents the insertion of retrospective provisions requiring members to increase their shareholdings or provide additional funds to the company, unless members agree in writing to be bound.

If you require further information regarding the alteration of your Company's Articles of Association or any other company related matters please contact James Crighton via e-mail or by phone on 0207 611 4848.