A company’s ‘constitution’ is defined under the Companies Act 2006 (CA 2006) as including the company’s articles of association and any resolutions and agreements affecting a company’s constitution. The CA 2006 definition of ‘constitution’ is not exhaustive and also refers to other documents forming part of the constitution of a company, including the certificate of incorporation and any certificates of incorporation on change of name, 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 or sanctioning a compromise, arrangement, reconstruction or amalgamation. In this article, corporate constitution, we take a look at the process involved and the options available to you.
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What are Constitutional Documents?
With respect to any Person, constitutional documents can include the certificate of incorporation, memorandum of association, articles of association, joint venture agreement, shareholders agreement, business license or similar constitutive documents for such Person.
Articles of Association
When a company is formed, two documents are needed: a memorandum of association and articles of association. A memorandum of association is a bit of a formality and the article of association comprises the company’s constitution.
The articles of association are the internal regulations or by-laws of a business. They specify both the manner in which the business is to be conducted and the rights of shareholders. It is the articles that address issues such as the rights linked to each class of share, the quorum required for meetings, and the manner in which shares may be transferred.
The Companies Act establishes a model form of articles for a private company and a limited liability corporation. The most recent versions are from October 2009 and are shorter than the prior versions referred to as Tables A and C. For the first time, a model form of articles for a public corporation is included. Each is written in clear English.
As tempting as it may be to utilise these sample forms, they will not work for every business. The private company articles, in particular, are intended for small owner/manager businesses and will not apply to larger businesses with more complicated ownership structures.
Many older private companies may frequently continue to base their articles on the old Table A, with a few modifications to suit their individual circumstances. By contrast, public businesses and certain bigger private organisations are more inclined to eschew all model forms in favour of compiling their articles into a single customised document. Your articles may say whatever you want, with one caveat: you may not violate the law. For instance, the Companies Act specifies that a business may pay dividends only if it has distributable profits, and the articles cannot modify this requirement. Similarly, shareholders’ right to remove a director via ordinary resolution must be upheld: the articles may make it simpler to remove a director; they may not make it more difficult.
Companies listed on the Stock Exchange or AIM must adhere to specific rules in order to be quoted. Additionally, if a fully listed company’s articles contain any ‘unique elements,’ they must be approved by the UK Listing Authority (that is, the Financial Conduct Authority). The articles are frequently referred to as a contract between a corporation and its members. When you become a shareholder, you agree to be bound by the company’s articles of incorporation — both now and in the future. You will have the option to vote on any change, but after the vote is complete, the change will take effect regardless of whether you agreed or disagreed. The implication is that a shareholder may sue a corporation for acting contrary to its articles – the ‘contract’ binds both parties. Similarly to how you can write whatever you want into your articles, you can edit them at any time – provided a specific resolution is passed. However, changes will be challenged if they cannot be explained as being made in good faith or are partisan in nature. If a majority of shareholders act maliciously and force a change that is detrimental to the minority, a court may invalidate the change as not being in the best interests of the corporation as a whole.
The articles of incorporation of a business are a public document. They need to be registered with Companies House. As a result, they are not the appropriate location for facts that a private firm may wish to keep private — for example, a financial return to be enjoyed by a shareholder or precise voting rules. Shareholders in joint ventures or private equity investments may prefer to keep these facts confidential. In other words, a business’s articles of incorporation may not adequately describe the relationship between shareholders and their company; further documents, such as a shareholders’ agreement, may be required to complete the picture.
How we can help
We have a proven track-record of drafting corporate 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 corporate 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.
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