Company Constitution Documents – A Complete Guide

What is Company Constitution Documents

The Company Constitution documents are the documents which governs the management of a company. It includes the company’s articles of association; its certificate of incorporation; its current statement of capital; copies of any court orders and enactments altering the company’s constitution; resolutions affecting the constitution; and agreements involving shareholders which affect the constitution“.

Every company in the UK has a company constitution UK which it adopts upon the registration of the business. It sets out the rules that will govern how the company should be run. It is important because it represents a unique kind of contract between the company as a separate legal person and the shareholders who are the owners.

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What is Included?

  • What is Company constitution
  • The Articles of Association
  • Amending the constitution
  • Restrictions on amending the articles

The Articles of Association

These are what form the company’s constitutional documents rule book. Those setting up the company will have three options to choose from:

  1. Unamended model articles of association.
  2. Model articles of association with amendments.
  3. Bespoke articles of association.

Under the Business law of UK, Every company must have a set of articles laying out the rules on how the company is to be run. The law in this area seeks to allow a certain amount of flexibility in terms of how they are run because they recognise the fact that companies are set up for different purposes and sizes. The articles are essential in helping clarify what powers the directors, as managers have and what powers shareholders, as owners of the company have. They also shed light on how decisions are to be taken in the company constitution.

Company Constitution Documents
Company Constitution Documents

Those who wish to deal with the company can find out how it is run, any restrictions on its operations in the Articles of Association which are found on the Companies House website. The company’s articles are available to the public. The articles must be contained in a single document and be divided into consecutively numbered paragraphs. This makes it easier for everyone involved or dealing with the company to obtain a clear lay-out and complete copy of the rules.

Amending the constitution

There are two separate procedures for amending the articles: amendment of ordinary articles and amendment of entrenched articles.

Companies evolve and the directors and shareholders may find that elements of the constitution they thought were suitable are no longer so. When this happens, the company’s constitution must be amended to reflect the changes. It is possible to make more than one change at the same time and for these amendments to be made at any time throughout its existence.

The shareholders of the company must usually pass a special resolution to change the articles of the company. It is worth knowing that a shareholders’ resolution is simply a decision of the shareholders and that being special, means it must be passed by a majority of no less than 75%. If the shareholders have sufficient votes to pass the resolution, the articles of the company will be amended. The Registrar of Companies must be sent a copy of the articles as amended not later than 15 days after the amendment takes effect. A copy of the special resolution itself must also be sent to the Registrar of Companies within 15 days after it has been passed. The two documents will be put on the company’s file at Companies House and thus will be publicly accessible.

The articles of a private company in a couple of exceptional cases do permit changes by an ordinary resolution of the company’s shareholders. An ordinary resolution may be passed by a simple majority of over 50% and is easier to achieve than a special resolution.

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Restrictions on amending the articles

The shareholders cannot amend the articles to conflict with the mandatory provisions. The provisions are both voluntary and mandatory. The voluntary provisions are those that will only apply unless they are excluded by the company’s articles or chosen by the shareholders to include in the company’s articles. Voluntary provisions explicitly state that they are subject to the articles.

Mandatory provisions are those which cannot be excluded by the company’s articles.

In common law restrictions, generally, shareholders can make changes to articles only if it is for the benefit of the company. This is a complex test which has generated several case law and commentary. This is a subjective matter for the shareholders to decide and not the courts to decide what is in the best interest of a company.

Objectively, there are amendments that cannot be said to benefit the company for instance discriminating against minority shareholders. This does not benefit the company.

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