What is the Constitution of a Company?
Regardless of the size of a limited company it is still essential to ensure that the constitution (i.e. the rules governing the internal and external operation of the company), are accurate and up to date. Not only is this important on a practical level but it is also important from the perspective of the directors. Directors are only allowed to operate within the remit of the constitution and therefore if the actions are not allowed under the constitution directors can find themselves in breach of their duties if they continue along this course of action.
Typically the constitutional documents are established at the outset when the company is set up. This can mean that over the course of the life of the business these need to change. Recognising that these changes need to take place is the first step and secondly then the administrative processes need to be determined so that they can be duly followed. These processes have recently been altered by the Companies Act 2006.
Changes under the Companies Act 2006
One of the main aims of the Companies Act 2006 was to simplify processes, particularly for the purposes of private companies. It was recognised that private companies were often placed under an undue administrative burden and as such the simplification of the processes were necessary. One of these changes was to merge the two key constitutional documents (the memorandum and the articles of association) which were in reality viewed as one for the purposes of the company administration.
Typically the memorandum of association would contain the objects of the company, detailing the purposes for which the company would operate. Under the new provisions the memorandum of association is no longer required with the objects being contained as part of the articles of association. Where there are no objects contained in the articles of association and these have been established since October 2009 it will be thought that the objects are unrestricted.
Contents of the Articles of Association
Central to the operation of a company is the contents of the articles of association. These contain provisions such as how the directors need to conduct the business of the company including factors such as how meetings are held or how meetings should be conducted. Necessary quorum levels are also stated in the articles of association.
It is not only relevant for the purpose of how the directors conduct their own business within the company but also offers guidance to shareholders as to how the administration of their meetings should be undertaken. With this in mind it is important to recognise that the articles of association are a matter that should be considered and understood by not only the directors but also the shareholders.
For more information on:
- Resolution Options
- Practical Considerations With Changing the Constitution
- Purpose of Change
- Record Keeping
- Practical Tips