Firstly what are articles of association?
They are the written legal rules about running the company that is agreed upon by the shareholders, directors and the company secretary when you form the company. Every company has a set available on Companies House. If you haven’t read them, then now is a great opportunity to review them
When you set up a company you will either adopt the model articles of association (table A) or draft amended articles of association ( with the support of your accountant or solicitor).
The model sets out basic legal rules covering decision-making powers, paying dividends, voting rights, appointing and removing directors, as well as the legal proportion of votes needed for your organisation to pass a resolution.
Why would you want to amend your articles of association?
The current model articles of association, have the default setting saying directors must act in the best interests of the shareholders and don’t consider the wider stakeholders.
You can update your articles of association by either
- Amending the wording of one or more clauses in the existing Articles of Association
- Adding, removing or substituting clauses from the existing Articles of Association; or
- Adopting an entirely new set of Articles of Association to replace the existing Articles of Association.
Unless the company has only a single director and shareholder any change to the Articles of Association will require a special resolution to be passed. This means that it will require the agreement of 75% of shareholders.
There are two ways in which a special resolution can be passed:
- A written resolution to change the Articles of Association
- A special resolution passed at a shareholders’ meeting
The amended articles will need to be posted to Companies House with the written resolution and these will be scanned onto the Companies House website. These need to be delivered within 15 days to Companies House.
Examples of clauses in the articles of association that may wish to amend:
- Changes to the Companies Act – You may wish to amend your articles to reflect any changes to the Companies Act.
- Changing the name of the company – means changing the references in your articles.
- Objectives of the business – you can add objects to clarify what the business intends to do or the way it will be run. For example, the B corporation requires the inclusion of mission-aligned language in the articles of association
- Changes of shareholders – Add clear procedures about how you deal with resignations, retirements or death of shareholders.
- Decision-making powers – Be more prescriptive about the rules on the decision-making powers of a director
- Directors – add restrictions on who may act as a director i.e. experience, qualifications
- New directors – add a clearer procedure for appointing new directors and the requirements of that director.
- Power to remove directors – add a clear policy for the removal of directors.
- Share transfers – you may want to add provisions to restrict share transfer shares to prevent takeovers or sale to consolidators.
There are lots of reasons why you may want to consider amending your articles of association.
Who can amend the articles of association?
I would work with your accountant to amend your articles of association. They may recommend you use a solicitor in the more complex amendments.
Example of an amendment to your articles of association
B corporations are required to include mission-aligned language in their articles of association.
The B Corp requirement should be adopted verbatim and it commits you to use your business as a force for good by:
· Creating a material positive impact on society and the environment through your business and operations
· Considering ‘stakeholder interests’ – including your shareholders, employees, suppliers, society and the environment
Here at Switchfoot, we recommend all companies consider adding the B Corp wordings (you don’t need to want to be a B Corp, to do it) and the wordings are included in all companies we form.
We believe the wording is important because it
i) Makes it clear how you run your business and it’s on public record;
ii) Most businesses are a force for good or with small tweaks can be;
iii) Demonstrating your impact on the world is great for business.
Please get in touch if you would like to talk about how we can help you build a better business.
Please note: This is not meant to constitute professional advice. It is generic guidance only –please seek specific advice for your circumstances.