The Companies Act 2006 (CA 2006) defines a company’s ‘constitution’ as containing its articles of association and any decisions or agreements influencing its constitution. The CA 2006 definition of ‘constitution’ is not exhaustive; it also includes other documents that constitute a company’s constitution, such as the certificate of incorporation and any certificates of incorporation on name change, a current statement of capital (or statement of guarantee for a company limited by guarantee), and any court orders or enactments altering the company’s constitution. In this article, company constitution UK, we take a look at the process involved and the options available to you.
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What are Constitutional Documents?
Constitutional documents can refer to any Person’s certificate of incorporation, memorandum of association, articles of organisation, joint venture agreement, shareholders agreement, company licence, or other similar constitutive documents.
Articles of Association
Two documents are required when forming a corporation: a memorandum of association and articles of association. A memorandum of association is a purely formal document, whereas an article of association represents the company’s constitution.
The articles of association are a business’s internal policies or by-laws. They define both the method in which business will be conducted and the shareholders’ rights. The articles include topics such as the rights attached to each class of shares, the quorum required for meetings, and the manner in which shares may be transferred.
The Companies Act sets a model form of articles of incorporation for a private company and a limited liability company. The most recent versions, referred to as Tables A and C, date from October 2009 and are shorter than the previous versions. For the first time, the book includes a model form of articles of incorporation for a public corporation. Each is written in straightforward English.
While it may be tempting to use these sample forms, they are not appropriate for every organisation. The articles on private companies, in particular, are meant for small owner/manager enterprises and will not apply to larger organisations with more complex ownership structures.
Numerous older private companies frequently continue to base their articles on the old Table A, with minor revisions to accommodate their unique circumstances. By contrast, public corporations and certain larger private organisations are more likely to avoid using standard forms in favour of combining their articles into a single customised document. You may write whatever you want in your articles, with one caveat: you may not break the law. For example, the Companies Act requires a business to pay dividends only if it has distributable profits, and the articles cannot alter this condition. Similarly, shareholders’ right to remove a director by ordinary resolution must be upheld: the articles may make removing a director easier; they may not make it more difficult.
Companies who wish to be mentioned on the Stock Exchange or AIM must conform to specified rules. Additionally, if the articles of a fully listed business contain any ‘unique elements,’ the UK Listing Authority must approve them (that is, the Financial Conduct Authority). Frequently, the articles of incorporation are referred to as a contract between the corporation and its members. By becoming a shareholder, you agree to be bound by the articles of incorporation of the business, both now and in the future. You will have the ability to vote on any change, but after the vote is complete, the change will take effect regardless of whether you voted in favour or against it. The implication is that a shareholder may sue a business for violating its articles of incorporation – the ‘contract’ is binding on both parties. Similarly to how you are free to write whatever you want in your articles, you are free to change them at any moment – provided a certain resolution is approved. However, alterations that cannot be described as being made in good faith or are partisan in nature will be disputed. If a majority of shareholders act intentionally and compel a change that is detrimental to the minority, a court may nullify the change as not being in the corporation’s best interests.
A business’s articles of incorporation are a public document. Companies House must be notified of their existence. As a result, they are not the proper venue for information that a private corporation wishes to keep private, such as a financial return to a shareholder or exact voting rules. Joint venture or private equity investors may wish to keep these details private. In other words, the articles of incorporation of a firm may not fully depict the relationship between shareholders and the business; further papers, such as a shareholders’ agreement, may be required to complete the picture.
How we can help
We have a proven track-record of drafting company constitution documents. We will guide you through the process and ensure all checks are carried out swiftly and efficiently and we firmly believe that with the right solicitors by your side, the entire process will seem more manageable and far less daunting.
How to Contact Our Corporate Solicitors
It is important for you to be well informed about the issues and possible implications of drafting company constitution documents. However, expert legal support is crucial in terms of ensuring a positive outcome to your case.
To speak to our Corporate solicitors today, simply call us on 0345 901 0445, or click here to make a free enquiry. We are well known across the country and can assist wherever you are based. We also have offices based in Cheshire and London.
Disclaimer: This article provides general information only and does not constitute legal advice on any individual circumstances.
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