ACCA LW ^Eng Syllabus D. The Formation And Constitution Of Business Organisations - Explain How Articles Of Association Can Be Changed - Notes ^{5 / 6}

These ‘default’ model articles exist for the different types of company.

Such model articles apply to companies where they have not registered any articles of their own

The articles for private and public companies are different in content

Altering the AoA

This can be done by:

1. Passing a special resolution (75% majority needed) providing that

2. The alteration has been made 'bona fide' (in the interest of the company) and

3. Sent to the registrar within 15 days

Best Interests of the Company Test

This test is subjective and objective:

Subjective
Those deciding must actually believe they are acting in the interest of the company.

Objective
Any alteration has to be in the interest of the ‘individual hypothetical member’

Eg. An alteration that allows the 98% majority to buy out the 2% minority shareholders is invalid as not being in the interest of the company as a whole.

Eg 2, An alteration that allows directors to force a shareholder who is in competition with the company, to sell their shares

Changing the AoA to expel a member?

1. Member is defrauding the company

2. Member is competing against the company

Companies can ‘entrench’ provisions in their articles

This means certain things can only be changed by means that are more restrictive than a special resolution.

Eg. The agreement of all the members before it can be altered
(However, you cannot say that the articles can never be amended)

Be careful though, the articles can give a member such voting power to block a resolution to alter articles on particular points

However it is not possible to prevent change where there is unanimous agreement in favour of change.