THE articles of incorporation of a company provide a set of rules and guidelines, made in accordance with the law, for a company’s smooth functioning. It is a public document, which means that it is accessible to the public and allows for transparency and accountability of the company’s members and directors.

Articles of Association to Articles of Incorporation

Prior to the Companies Act, 2004 (the Act), a company’s constitutive documents were its articles of association and its memorandum of association. However, these documents changed with the passing and coming into force of the Act.

“Articles” are defined in the Act as, “articles of incorporation of a company as originally framed or as altered by special resolution.” Notably, the Act no longer mentions articles of association, and as such a company now comes into existence by the lodging of articles of incorporation, among other documents, instead of articles of association and memorandum of association.

However, two decades later, there are still companies which have old articles of association despite the legislative move to articles of incorporation.

While this could sound conflicting and potentially problematic, there is no requirement for companies incorporated prior to the Act coming into force to make the switch to articles of incorporation. Therefore, companies which have old articles of association are still valid and the company will still be bound by those articles of association.

So why make the switch?

However, it is advisable for a company to adopt articles of incorporation not merely to achieve full compliance with the Act but also as a matter of prudence.

If a company wants to make amendments to its constitutive documents, these amendments cannot be made under the Act to articles of association and memorandum of association, but instead new articles of incorporation would have to be filed. This is so because the Act only provides for articles of incorporation as set out in the definition of articles provided above.

Adopting New Articles of Incorporation

At the time when the new Act came into effect, and in the years since, there were changes made to the law which may need to be addressed in the company’s articles of incorporation, and which can only be addressed if the company has articles of incorporation.

For instance, the Act now allows companies to “buy back” their own shares. This can be a useful mechanism used by the company — after taking into account market conditions — to increase the value of the company’s shares. This matter should be addressed specifically in the company’s articles of incorporation, so that if the company decides that it should not be allowed to buy back its own shares then the articles will clearly state the company’s position on the matter.

Another amendment made to the Act recently was the ability of the company to hold virtual and hybrid meetings. While the Act seemingly allows a company to hold these types of meetings without any direct reference in its articles, the inclusion of them in the company’s articles might be useful so that the guidelines are clearly set out and accessible to its members.

Additionally, subject to the conditions outlined in the Act, the Act allows directors to participate in a meeting of the directors by telephone or by other communication equipment and wherein all participants are able to hear each other. In this scenario they are then deemed present at the meeting and as part of the quorum of the meeting.

The Act also allows the company to provide insurance to officers, directors, or any person employed by the company as an auditor, against liability incurred in their respective capacities, other than liability for fraud. Furthermore, subject to the provisions of the Act, the company may provide an indemnity to specified persons in relation to costs, charges or expenses reasonably incurred by the person due to litigation he was made party to, as a result of his position in the company. These provisions give the company an opportunity to provide protection and assurance to those persons acting for and on behalf of the company.

A company’s articles of incorporation may also outline the procedure to resolve a situation in which a director’s right to vote is being challenged, and it may also address the company’s power to repurchase shares of a beneficial owner who has not provided the beneficial ownership information as required by the Act.

These are a few among the other critical amendments made to local companies’ legislation which have encouraged companies to make the change from articles of association to articles of incorporation.

Even if a company was originally formed with articles of incorporation, or was not but after its incorporation adopted articles of incorporation, it is important for it to ensure that the company has taken due note of changes in the law over the years.

Companies which have been in existence for a long time should carefully consider whether its articles need to be updated.

Joshua Guiness-Brown is a graduate of Norman Manley Law School hoping to be called to the Bar. This article was reviewed and approved by Peter Goldson, a partner in the Commercial Department at Myers, Fletcher & Gordon. He may be contacted at peter.goldson@mfg.com.jm or through the firm’s website www.myersfletcher.com. This article is for general information purposes only and does not constitute legal advice.