The company constitution is the set of documents and resolutions that govern how a UK company is run. It defines the relationship between the company, its directors and its shareholders, and sets out the rules for decision-making, share rights and internal management.
What Makes Up the Constitution
Under the Companies Act 2006 (s.17), a company’s constitution includes:
| Component | Description |
|---|---|
| Articles of association | The primary governance document setting out the rules for running the company |
| Resolutions and agreements | Special resolutions and other constitutional resolutions that affect the articles |
| Memorandum of association | The formation document (for companies formed under the 2006 Act, this is a simple statement of intent) |
| Certificate of incorporation | Confirms the company’s legal existence and type |
For companies incorporated before 1 October 2009 (under the Companies Act 1985), the memorandum may contain additional provisions (such as the objects clause) that are treated as part of the articles.
Articles of Association
The articles of association are the most important part of the constitution. They cover:
- Directors’ powers and how the board operates
- Shareholders’ rights including voting, dividends and transfer of shares
- Decision-making procedures for board meetings and general meetings
- Appointment and removal of directors
- Distribution of profits and return of capital
- Share classes and the rights attached to each class
Model Articles
Companies can adopt the model articles prescribed by the Companies (Model Articles) Regulations 2008. There are separate model articles for:
- Private companies limited by shares (the most commonly used)
- Private companies limited by guarantee
- Public companies
If a company does not file its own articles on incorporation, the relevant model articles apply by default. Most companies adopt the model articles with modifications tailored to their needs.
Companies with more complex requirements may draft bespoke articles with additions such as pre-emption provisions on share transfers, good leaver/bad leaver clauses, reserved matters requiring shareholder consent and deadlock resolution mechanisms.
Resolutions Affecting the Constitution
Certain decisions require a special resolution (at least 75% majority) because they alter the company’s constitution.
| Resolution Type | Majority Required | Purpose |
|---|---|---|
| Special resolution | 75% | Amend articles, change company name, reduce share capital, wind up voluntarily |
| Ordinary resolution | Simple majority (over 50%) | Appoint directors, approve dividends, appoint auditors |
| Written resolution | Same thresholds as above | Any resolution passed without a meeting (private companies only) |
A copy of every special resolution must be filed with Companies House within 15 days of being passed.
Shareholder Rights
The constitution defines the rights of shareholders, which broadly fall into three categories:
Voting Rights
- Each ordinary share typically carries one vote
- The articles may create shares with enhanced voting rights (e.g. 10 votes per share) or no voting rights
- Voting at general meetings can be on a show of hands (one vote per member) or by poll (votes in proportion to shareholding)
Economic Rights
- Dividend rights — the right to receive a share of profits when dividends are declared
- Capital rights — the right to a share of the company’s assets on winding up
- These rights can vary by share class (e.g. preference shares may receive a fixed dividend before ordinary shareholders)
Information Rights
- Right to receive copies of the annual accounts
- Right to inspect the company’s statutory books
- Right to receive notice of general meetings
Shareholders’ Agreement vs Articles
A shareholders’ agreement is a private contract between shareholders that sits alongside the articles. The key differences are:
| Feature | Articles of Association | Shareholders’ Agreement |
|---|---|---|
| Public document | Yes (filed at Companies House) | No (confidential) |
| Binds all members | Yes (including future shareholders) | Only those who sign it |
| Amendment | Special resolution (75%) | Unanimous consent (usually) |
| Enforcement | As a statutory contract under s.33 CA 2006 | As a private contract |
| Registration | Must be filed with Companies House | Not filed |
In practice, many companies use both documents. The articles deal with governance and procedural matters that should be public, while the shareholders’ agreement covers commercial arrangements, exit provisions and matters the parties want to keep confidential.
Entrenched Provisions
The Companies Act 2006 allows companies to include entrenched provisions in their articles that can only be amended by meeting conditions more restrictive than a special resolution (e.g. unanimous consent or consent of a specific shareholder class). Entrenchment cannot make a provision completely unamendable. A notice of entrenchment must be filed with Companies House using form CC03.
Amending the Constitution
Amending the Articles
The articles can be amended by passing a special resolution (75% majority). The amended articles must be filed with Companies House within 15 days along with a copy of the resolution. The amendment takes effect from the date the resolution is passed (not from the date of filing).
Restrictions on Amendments
An amendment to the articles:
- Must be lawful (it cannot require a member to take more shares or increase their liability without their consent)
- Must be bona fide for the benefit of the company as a whole (not to oppress a minority)
- Must not conflict with the Companies Act or other legislation
- Must respect any entrenchment provisions
Practical Steps
- Draft the proposed amendment clearly identifying the article(s) to be changed
- Give proper notice of the general meeting or circulate a written resolution
- Pass the special resolution with at least 75% of votes cast
- File the resolution and amended articles with Companies House within 15 days
- Update the company’s records to reflect the new articles