How to Change Your Memorandum and Article of Associations?

Limited companies in the UK can change the memorandum and article of association at any time. Since these are governing documents, any change requires a Special resolution that must be approved by 75% of the members. Those that can be changed include company objectives, authorised share capital, and shareholder voting rights.

Many companies update their articles at least once in the company's lifetime. This blog contains steps to follow when changing the articles and how to get approval from shareholders. We'll also discuss how to notify companies House and the benefits of making such amendments.

How to Make Changes to Your Memorandum and Article of Association

Your company memorandum of association sets up your business, while the article of association outlines how the business is run. With time, you may need to alter your business articles to change the structure or meet your company's requirements.

Depending on how intricate and extensive these amendments may consist:

• Addition or removal of specific clauses
• Adding more words to existing provisions within current articles
• Crafting entirely fresh or custom articles of association

Shareholders or guarantors must pass a special resolution in writing or at the general meeting. However, if you're a sole director and shareholder, changing the articles is simple since you are alone. However, 75% of the shareholders must approve the special resolution of a company with more members.

How is the Written Resolution Passed?

A written resolution is the most straightforward way to alter company articles. Many companies mostly use this option because it eliminates the necessity of organising and holding a general meeting, which isn't always convenient in every circumstance.

Below are the steps you must follow to pass a resolution:

1. Draft the proposed resolution with a statement detailing how members can indicate their consent and the deadline by which they must do so.
2. Distribute the resolution and statement in digital or hard copy format to every eligible voting shareholder. You may send individual copies simultaneously to all shareholders or circulate the duplicate copy sequentially to each member.
3. After approval, submit the signed special resolution copy and the new articles copy to the Companies House. You must do this within 15 days after the resolution is approved.

Once the resolution has been approved, the new articles will be compelling immediately. Keep a copy of the resolution and the changed articles at your company's registered office address. You may also give these copies to the directors, company auditor, and members.

How is a Special Resolution Passed During a General Meeting?

As mentioned, you can pass the special resolution through an AGM or an extraordinary meeting to approve the new articles. This is ideal for a company with many shareholders or decisions that need detailed discussions.

For you to pass a special resolution through a general meeting, you must follow these steps:

1. Call a board meeting to discuss and draft the proposed special resolution and reach a consensus to hold a general meeting
2. Send the general meeting notice to all eligible members with a minimum of 14 days' notice. Also, provide comprehensive information about the proposed resolution outlining the amendments and a copy of the revised articles.
3. Present the resolution to shareholders, let them discuss the proposed amendments, and cast their votes.
4. After approval, you must send a copy of the resolution and revised company articles to the Companies House 15 days after the meeting.

The revised company articles will apply after the special resolution is approved during the general meeting. Companies House will publish the new articles on the register of companies that are available for public viewing.

How to Notify Companies House

It is mandatory to inform the Companies House within 15 days of implementing any article amendments. You must send the new articles and a copy of the resolution.

In other cases, you need to include:

• Form CC04: this is when you're updating company objectives in the articles
• Form CC05:  when the law mandates you to change the articles
• Form CC06: If a court or any other authority ordered the amendment.

You can submit these documents via document upload service or send the hard copy through post to Companies House in Belfast, Cardiff or Edinburgh based on where you registered your company.

Restrictions When Changing Memorandum and Articles of Association

Companies have the freedom to alter their company's articles; however, some rules and regulations apply:

1. No clauses within the articles can supersede company law. Any modifications must adhere to the rules outlined in the Companies Act 2006
2. Any alteration must genuinely serve the collective interests of the entire company rather than being tailored to cater solely to specific members. Although every member may disagree with article changes, majority members mustn't use the changes to discriminate against minority members and their statutory rights as company members.
3. You shouldn't modify the articles to eliminate the capacity for future amendments. However, there might be stipulations associated with making changes. For instance, a contractual agreement like a shareholders' agreement may limit the methods through which article alterations can be made.
4. Amendments with retroactive implications must be carefully evaluated to ensure they're lawful and equitable. Section 25 of the Companies Act 2006 prohibits the company from introducing retrospective provisions that mandate members to increase their shareholdings. It doesn't allow members to provide additional funds to the company without the written agreement of the members.

Why a Company Would Change its Memorandum and Articles of Association

There are many reasons why a company may decide to amend their articles. Occasionally, the amendments are necessary due to new rules or amendments to existing regulations, or the company has been instructed by the court or a regulatory authority to implement specific modifications.

However, companies revise their memorandum and Articles of Association because the current version lacks clarity or no longer aligns with business.

Let's check the familiar examples:

1. Membership criteria

Exercising control over the eligibility of whom to hold shares in your business is crucial. Some companies enforce criteria such as maximum membership limit and minimum age of a member. Others impose restrictions based on familial relations, affiliations, expertise or objectives of potential shareholders.

2. Shareholders rights

Clarifying members' rights is one of the most pivotal motivations for amending your company's articles of association. Here are vital considerations you may consider:

• Share buyback clause
• Pre-emption rights
• Drag-along and tag-along rights
• Share allotment and transfer restrictions
• Restrictive covenants
• Transmission of shares in certain situations, like the death of a member
• Dividends and voting rights attached to shares
• Guidelines for announcing and disbursing dividends
• Rules and procedures for decision-making, including reserved matters

All shareholder matters must be outlined in the shareholders' agreement. However, this agreement is optional and an addition to the articles, so the two documents shouldn't collide. So, if you update the articles, you must revise the shareholders' agreement.

3. Directors appointment

There are several statutory restrictions when appointing a company director. For example, you may want the existing director to have the power to appoint a new director without members' approval. Do you wish to limit directorship to members or individuals with specific qualifications? Are you considering a cap on the maximum number of directors the company can have concurrently?

4. Powers of a director

The model articles of associations grant directors significant power and control over business matters. Therefore, members who aren't directors will have little say over the company's management decisions and company's direction.

So, companies may amend their articles to regulate directors' authority and specify that certain decisions require members' approval, for example, the allotment of new shares or the endorsement of share transfers.

5. Allotting share classes

The model articles are ideal for businesses with ordinary shares with equal value. If you want to issue multiple share classes or another type of share, you must change your articles of association.

Authorised share capital

Certain companies prefer limiting issued shares to a specified amount, for instance, £10 divided into 10 shares. This limitation is also called authorised share capital. Before 2009, companies should identify their authorised share capital memorandum of association. However, this is optional; companies still specify their share capital amount in the articles to prohibit excessive share dilution.

6. Company meetings

While private companies are not obliged by law to conduct board or general meetings, there is considerable merit in doing so. Hence, you might consider amending your company's articles to specify that meetings must be convened regularly (e.g. quarterly or yearly).

7. Dispute resolutions

There could be shareholder disputes, but the model articles don't address this. Revising the articles and including dispute resolutions is vital to deal with conflicts effectively.

Incorporate Your Company with Incorpuk Today

At Incorpuk, we will help you file accurate information when you register your company through us. We will help you with incorporation articles, a registered office address, and all you may need to register your company in the UK. Contact our team if you seek any information; we will gladly assist.

Winding Up

As a company director or shareholder, you should regularly review the company's memorandum and article of association to ensure they align with company objectives and fit their purposes. Outdated company articles can result in avoidable issues, prohibit decision-making and raise members' disputes, which could harm the company's success.

Changing these articles is straightforward if you follow the outlined procedures and ensure compliance. You may hire an attorney based on your company's needs, but you can still make amendments yourself. If you have any questions on how to change your Memorandum and Article of Association, don’t hesitate to contact us here, and we’ll do everything we can to help.