Every company in the UK is governed by a set of rules known as 'articles of association'. These articles outline how the company operates and the responsibilities of its directors and shareholders. But what happens if a company evolves, and the current rules no longer fit? In this guide, we’ll explain how to change articles of association, why you might want to do so, and the key steps involved.
What are articles of association?
Articles of association are a legal document that sets out the internal regulations for running a company. They form part of the company’s constitution and cover areas like:
The roles and powers of directors
The rights of shareholders
Decision-making processes, including voting procedures
Share transfer rules
Every limited company in the UK must have articles of association. Most companies adopt the model articles provided by Companies House, but businesses can create customised articles to suit their specific requirements.
Can articles of association be changed?
Yes, companies can change their articles of association at any time. However, the process must follow legal requirements outlined in the Companies Act 2006. Changes often require approval from the shareholders through a special resolution. This resolution must be passed by a majority of at least 75% of the shareholders voting in favour. Once the changes are approved, the updated articles must be filed with Companies House to take effect.
💡Editor's insight: "I find people often get the memorandum and articles of association confused. A memorandum of association (MOA) is a legal document that establishes a company, and the articles of association (AOA) are the rules that govern how the company is run. Both are required when starting a company!"
When should you amend them?
There are several reasons why a company might want to amend its articles of association:
Changing share structure: If a company wants to introduce a new class of shares or alter the rights attached to existing shares, it will need to update its articles.
Director powers or voting rights: To redefine how decisions are made, articles can be amended to modify voting thresholds or director powers.
Modernising outdated rules: Older companies may have articles that are no longer relevant or conflict with current UK legislation.
Aligning with shareholder agreements: If a company enters into a shareholder agreement, changes may be required to reflect the terms in the articles.
How to change articles of association: Step-by-step guide
If you’re considering changing articles of association, you'll need to follow the correct steps. Here's a quick overview:
1. Review the current articles
Start by carefully examining your existing articles to identify the sections you need to amend. This step ensures you clearly understand the impact of any proposed changes.
2. Draft the new articles
Prepare a revised version of the articles of association. You may want to consult a small business solicitor or legal expert to ensure the changes are clear, lawful, and tailored to your company’s needs.
3. Pass a special resolution
Organise a meeting with the company’s shareholders to propose the amendment. Shareholders must vote on a special resolution, requiring at least 75% of the votes in favour to pass. Alternatively, you can circulate a written resolution if permitted by your company’s rules.
4. File the resolution and updated articles
Once the special resolution is passed, you must submit the following documents to Companies House:
A copy of the special resolution (Form RES01)
The updated or new articles of association
5. Record the changes
Update your company’s internal records to reflect the amendments. The changes take legal effect from the date the resolution is passed or a later date specified in the resolution.
Are there any restrictions?
Yes, there are limitations and restrictions when amending articles of association:
Consistency with the Companies Act: Changes cannot conflict with the mandatory provisions of the Companies Act 2006.
Minority shareholder protection: Companies must not make changes that unfairly prejudice minority shareholders. In some cases, minority shareholders may challenge amendments in court.
Alterations to class rights: If changes affect the rights of a specific class of shares, additional approvals may be required from the shareholders of that class.
How long does it take to amend articles of association?
The timeline for amending articles of association can vary depending on:
Shareholder availability: Calling a general meeting and securing a vote may take time, especially for companies with a large shareholder base.
Preparation of documents: Drafting new articles and completing legal paperwork requires careful attention to detail.
Companies House processing: Once submitted, Companies House typically processes documents within 5 to 10 days, although expedited services may be available.
On average, the entire process may take between two to four weeks, depending on the complexity of the changes.
Final thoughts
Changing articles of association is an important process that allows a company to adapt to changing business needs. While the flexibility to amend these rules is beneficial, it’s essential to follow the correct legal procedures to avoid disputes or invalid amendments.
If you need help with amending articles of association, consulting a legal expert can make the process smoother and ensure your company’s interests are fully protected. Whatever your reasons for change, taking the right steps keeps your business on the path to success.
References
Make changes to your private limited company from Gov.UK