What is Article of Association (AoA)?
An Article of Association along with the Memorandum of Association forms the constitution of a company which defines the framework of a company.
However, as per the new legislation, the articles of association will become the single constitutional document for a UK company and will cover majority of roles which was previously defined under memorandum of association.
Since a company is an incorporated body so there has to be some governing rules and regulations to ensure its smooth functioning, both internally and on external level.
Apart from defining rules and regulations, an Article of Association also defines the roles and responsibilities of the directors, the kind of business that company will be dealing with and the means by which the shareholders exert control over the board of directors.
An Article of Association, also known as AoA, is a very important document which is filed with the Registrar of the Companies and can cover a wide range of topics, such as:
Since articles of association form such an important and indispensable part of a company, its directors and company secretary should be well versed with the same for them to perform and act within their defined roles.
A timely and regular review of the same adds to the smooth functioning of the company because in today’s dynamic and ever-changing environment, some clauses may no longer be useful and thus they need to be replaced with the new ones, if applicable.
So, if the article of association is being timely reviewed and updated wherever required, the company will be able to strike off perfect balance between the needs of its directors and shareholders because its timely update will ensure that the former get the right powers to run the company whereas the interests of the later remains well protected.
Changes in Article of Association After Incorporation
An article of association is submitted during the incorporation of the company and it is filed with the Registrar of the Companies.
However contents the articles of association is not set in the stone and if after few years of running your business, if you wish to make certain changes in the same, you can do so by following the defined process for the same. However, as a company, you are binded by certain restrictions on your ability to do so, such as:
- Any change which might take away the option to make any further changes in the articles of association cannot be done. However, you can have certain conditions attached to it, for example: a contractual arrangement like a shareholders’ agreement has the ability to restrict the ways in which the articles can be amended.
- Any proposed change in the existing articles of association should be in the best interest of the whole company and not only a particular section of the company. Although it is not possible to have a hundred percent consensus on a suggested or required change to the articles, but it is important to ensure that any such change should not and cannot be used by the majority section to discriminate against the minority ones.
- A proposed change in the articles of association should be legal and fair in all means; and thus
Once a legitimate need to update or modify the existing articles of association is identified, you can go ahead and implement the same by:
- Amending the words of one or more clauses in the already existing articles;
- Either adding or removing the existing clauses;
- Replacing the entire set of articles with a fresh set of articles.
So once the need and required modification in the existing article is identified, you have to follow below mentioned steps to incorporate the suggested or required change, such as:
- A proposal must be prepared and presented to the board of directors for their perusal and approval. It is advisable to list out the reasons of the required change and it is best to include full text of the new articles.
- A general meeting should be held and a special resolution to modify or change the articles of association should be passed by at least 75% or more.
- Once the special resolution is passed with the required vote, the Companies House should be informed about the same. A copy of the special resolve alongside the new articles needs to be submitted at the Companies House within 15 days of the general meeting.
- Once approved by the Companies House, copies of the new or amended articles along with a copy of the special resolve should be sent to the interested or affected parties. Although it is not obligatory but a good practice to send copies to the shareholders as well.
While it may sound easy to incorporate any change in the defined articles of association, it is quite a painful task when it comes to practice. Apart from time and effort it demands, it is quite cumbersome to seek frequent approval of shareholders every time you wish to incorporate any change in the articles. For the same reason, it is always a better practice to have a regular review of the articles of association so that all the required changes can be done in one go rather than doing it every now and then and it also helps you to schedule general meeting well in advance for special resolution.