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What is a Shareholders’ Resolution to Alter Articles of Association?

A Shareholders’ Resolution to Alter Articles of Association is a resolution to amend the current Articles of Association of a company. A Shareholders’ Resolution to Alter Articles of Association is a special resolution that requires approval of more than 75% of shareholders attending and voting on the matter.

After using a Shareholders’ Resolution to Alter Articles of Association, remember to file the relevant form to update the relevant government department or registry within the statutory time limit.

What are the Articles of Association (AOA)?

The Articles of Association (AOA) is a document that specifies the regulation and operation of a business. It also helps to define the purpose of a company through a detailed breakdown of rules and regulations for the internal management of the company. It is considered as the “constitution of a company”. Because the company constitution is a legally binding contract between the company and its shareholders, the shareholders can bring an action to enforce its provisions. Similarly, the company itself can also enforce the provisions of the company constitution to compel its members to comply with it.

How to draft the Articles of Association (AOA)?

There are several mandatory segments that need to be included in the Articles of Association:

  • Name clause which states the name of the company.
  • Liability clause which defines the extent of the company members’ liabilities limitations
  • Rules and regulations regarding both internal and external compliance with regulatory authorities.
  • Company type and the company’s business structure.
  • Shares issued by the company, matters regarding their transfer, and ways in which share certificates will be dealt with.
  • Dividends and the plan of their payment to shareholders.
  • Directors, their powers and duties, the number of directors, the frequency of their meetings, weight of voting, etc.
  • Conflict of interest and methods of their resolution.
  • Loans and their issuing to third parties.
  • Indemnities that are given to directors and employees.

What is the procedure of changing the articles of association using a shareholders’ resolution?

Shareholders can change the articles of association by passing a special resolution in a general meeting or by written resolution. There are two options when using a Shareholders’ Resolution to Alter Articles of Association:

  • if a general meeting (i.e., a meeting of shareholders) is convened to change AOA, use a Minutes of a General Meeting to Alter Articles of Association; or
  • if the company has only one shareholder or the shareholders choose to pass the resolution by way of a written resolution (which must be signed by all shareholders eligible to vote), use a Written Resolution to Alter Articles of Association.

What right do all common shareholders have over a company?

The main rights that all common shareholders have over a company are: Voting Rights: Every shareholder has a voting right to elect the directors in the company annual meeting. If they are not able to vote physically, they can do so by using a proxy and mail in their vote. Ownership in a portion of the company: Every shareholder has some amount of ownership in the company. However, the influence of shareholders over a company entirely depends upon the number of shares he/she acquires. They also have a claim on the portion of assets owned by the company.

Right to dividends: Dividends can be defined as the sum of money paid to shareholders by the company out of its profits. So, whenever the company makes some profit all the shareholders have the right to get the dividends out of that profit. Right to transfer ownership: All the common shareholders have the right to sell their shares to another person according to their needs. When they sell their shares, automatically the ownership gets transferred to another person. Right to information: Shareholders are also entitled to the right to information such as examining basic documents like company bylaws and minutes done by board meetings.

Conclusion: Shareholders’ Resolution to Alter Articles of Association

The Article of Association is a legal document that defines how a company is structured and run. A company can change or alter its article of association through a Shareholders’ Resolution to Alter Articles of Association to adapt to the changing business environment.

Which resolution has to be passed for alteration in the article of association?

To give effect to any alteration in the articles of association, a special resolution has to be passed by the Board first. It requires a 75% majority and so, to begin with, the company has to first hold a meeting of the Board of Directors. The total votes in favor of the resolution have to be at least three times more than the votes against the resolution.

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