Alter Articles of Association in the England company register
For every company to run smoothly and successfully, there are always some laws present in the company that prevents it from detracting from its main path. Not only that, there are also some laws present, that protects the rights of each and every member of the company in the England company register . These laws are mainly for the reason that the superiors of the company I.e. shareholders, don not use their power to suppress or destroy or blackmail their under employees too.
These articles of association are made at first from the equal agreement of all the shareholders of the company, when the company is first made and then is submitted to the companies' house, so that the check and balance of the laws remains. Later, if they want to alter it again in the future, they have to go through a number of procedures to ensure the companies’ house that should be authorized by them. For complete ensuring, it is checked whether the changing of the article is for the best interest of the company or not.
Now, let's talk about the procedures that were used before and still are in use, when in need to alter the article of association.
Approval of Amendment after set up limited company Companies House
The most basic procedure for its amendment approval is done by voting (What...? Voting?). Well! Yes! No matter how much we emphasize that a certain someone owns the whole company, he/she still has no liberty to make any changes in the articles of association. Even though, that person is the chairman of the company, in most cases, he/she is elected through voting of all the shareholders best interests, obviously, in some cases or in I think many cases the chair person is mostly he heir selected by the previous chair person. But still, in spite of all that, that chairperson doesn’t owns the whole company and for him to make any amendment in the article of association, he/she still needs to have the approval of the board members i.e. Shareholders.
About 75% approval of the board members is required for it. Yes 75%, not less. This is for ensuring that not only the majority wants the change (51%), but a huge amount of the well-wishers of the company wants it too, but this must have to be according to common law rules to stamp that this is for the best of the company.
Common Law Rules in the guideline issued by set up limited company Companies House
Now let’s start talking about how these common law rule judge if the change is for the right or for the wrong and also see how some cases got conflicted with the others.
The first initiative rule was the Allen v. Goldreefs it stated as:
Shareholders after they had to set up limited company Companies House must exercise their power to amend the articles bona fide in the best interests of the company.
But in this rule, there was always some uncertainty about whether there was any sort of some hidden objective or subjective for whether the exercise of voting power was genuine in the best interests of the company.
After that the next was the Dafen Tinplate:
• A clause enabling the majority to buy out the minority was not bona fide in the interests of the company because it was wider than the interests could require.
In this case/act, the objective test is applied.
Then comes, Sidebottom v. Kershaw
• A clause enabling directors to require any shareholder competing with the company to sell his shares was valid because it was in the interests of the company.
In this act, the objective test is not only applied but also has to be passed by the companies’ house.
On the other hand:
• A clause to remove a detested life director was held to be valid on the basis that it was for members, and not the court to decide what is in the best interests of the company.
Here, the subjective test is applied and passed.
• Greenhalgh had been removed from a position of control and his seat on the board, but still held appropriate rights. In an attempt to avoid the pre-emption rights, passed a special resolution saying that a transfer of shares to any party is fine as long as backed by an ordinary resolution.
An Australian case on the topic, Gambotto provided a different perspective and criticised Greenhalgh for being subjective. Here is what it concluded:
• Concerned a provision allowing the majority to force the minority to sell.
• Held that the objective test should apply and criticised the subjective approach in Shuttleworth and Greenhalgh saying that it did not respect the propriety nature of shareholding.
The logic of the Gambotto was flawed and also in its criticism of Shuttleworth. Because owning shares does not give a right to be a life director.
In Citco, Lord Hoffman disagreed with Gambotto as well.
• A provision which said that the test was Greenhalgh, whether the shareholders had honestly exercised their powers in the best interests of the company as a whole, including the interests of a hypothetical member.
• Lord Hoffman doubted whether there was any distinction between rules for provisions involving an expropriation of shares and those which do not. He also rejected the idea that shares carry a right to be involves. The only right a shareholder has is the right to a fair price for the shares, it is purely financial.
Where the company does not really have any interest then Lord Hoffman in Citco super scribe the test of Lord Evershed in Greenhalgh, that the exercise of powers must have honestly been in the interests of a hypothetical member.
William dislikes that it involves two abstract considerations, instead he would like the best interests of the company to merely incorporate the best interests of the hypothetical members.
He disagreed with this criticism, saying that there were no abstracts and quoting what Lord Hoffman said that; “Where a dispute about altering the articles is not a dispute in which the company has an interest, then the interests of the company as a whole may be aligned with the interests of the hypothetical member’’. Summing up the whole history above.