The articles of association (“Articles”) are the governing rule book of the Company. A regular review of your company’s Articles ensures that they contain the provisions that are right for your company and are in accordance with current legislation.
That’s particularly true when the company has more than one director or shareholder, as properly drafted Articles serve to protect their respective rights and interests in the company.
The Articles deal, among other things, with the following:
- How directors are appointed or removed
- How new shares are issued
- How shares can be transferred or sold
- How directors’ and shareholders’ meetings are organised
Why do you need to review your articles regularly?
The following are some of the reasons why a review of your Articles is necessary:
- Companies grow and change, and it might be that your Articles are no longer suitable
- Stakeholder views may require that you review your Articles – e.g. there may be concern that certain matters should have increased or decreased importance
- A review of your articles may be necessary if restrictions on how shares can be sold or transferred need to be added or if you have different classes of shares each set of rights needs to be reflected in the Articles
- If you wish to have the ability to hold virtual board or shareholders meetings then a review may be required
- The use of electronic communications can ease administration and therefore a review of the articles may be required to include the acceptable methods for the company
- Where your company is part of a group you may wish to consider adopting the same Articles for each of your subsidiaries to ease administration
- Articles drafted prior to the Companies Act 2006 are quite restrictive and therefore adopting revised Articles should be considered
Table A Articles
The Companies Act 2006 made some significant changes from the 1985 Companies Act on how directors and shareholders manage a company. One of those changes was to introduce “Model Articles” to replace “Table A” which was the 1985 equivalent. Articles drafted before 2006 will most likely reference Table A and will be restrictive.
If adopting Model Articles doesn’t work for your company, or the needs of your company have changed over time then it may be prudent to adopt bespoke Articles to better suit the needs of the company. Examples of where bespoke Articles would be relevant are if you wish to have multiple share classes or if you wish to be able to appoint alternate directors.
If you have Table A 1985 Articles or earlier then your Articles do need to be reviewed as there are benefits in adopting new Articles.
Key benefits of adopting new articles from Table A Articles
- Simplifying the constitution as the old Memorandum of Association was abolished
- Under the 2006 Companies Act the objects clause was removed from the Memorandum and therefore a company is no longer restricted in its activities
- There is no requirement to set out an authorised share capital so a company can increase its issued share capital more easily
- No upper limit on the number of shares it can issue
- A private company no longer needs to hold an annual general meeting
- Electronic communications are acceptable modes of communication
- A private company is no longer required to appoint a company secretary but may choose to do so
- Resolutions can be passed either in a meeting or by written resolution
Articles for subsidary companies
Where there are several subsidiaries within a group, the Articles may differ. It may be that one subsidiary can pass resolutions in writing and one subsidiary may have to hold a meeting in person to pass a resolution. By adopting the same set of Articles for each subsidiary it eases the administration as all the Articles are consistent.
How to update your articles?
Your Articles can be amended by passing a special resolution at a shareholders meeting and then the resolution and Articles are filed at Companies House.
Do you require a review of your Articles? Call +44 (0)20 3745 1916.