Company Law Solutions Limited provides an expert service for drafting and updating company articles and other documents.
Introduction
The remaining provisions of the Companies Act 2006 came into force on 1st. October 2009 and, as a result, most companies would benefit from a review and possible redrafting of their memorandum and articles. In many cases, the old documents will not only be out of date but will conflict with statutory provisions now in force. Many companies would benefit from the simpler documentation in the form of just a set of articles (in place of the existing memorandum and articles) and the simpler language to be found in the new Model Articles (which replace Table A). This page reviews the main issues for typical private companies limited by shares. The issues for public companies and companies limited by guarantee, particularly charities and community associations, will be similar but different.
Most standard private companies registered before 1.10.2009 have a memorandum of association with articles based on Table A and using typical company registration agents' or solicitors' standard documents. Now the new provisions are in force, provisions in the memorandum are now to be treated as if they were provisions of the articles. Adopting a new set of articles would have the following effects:
Removing the memorandum
As from 1st. October 2009, new companies do not have a traditional memorandum of association. Existing companies can now discard their memorandum and have just a new-style set of articles. There are two main issues here:
Objects
There is no requirement under the Companies Act 2006 for a company to state its objects, and if it does not do so the company has statutory objects and powers to undertake any business or activity whatsoever (CA 2006, sec31). If the company has objects in its memorandum or articles, these will limit the company's activities and powers. This will be appropriate in some cases (e.g. charities and Community Interest Companies), but most ordinary trading companies would be better having no such limitations. The objects in an existing memorandum can be removed by adopting a new set of articles which contain no such limitation. The change must be notified to Companies House on form CC04. The form is available from Companies House.
Authorised share capital
Until 1.10.2009, companies had to state their authorised (or nominal) capital. This is an upper limit to the number of shares the company can issue. For most companies it serves no useful purpose. The requirement for a company to state its authorised capital is abolished, thus simplifying the allotment and management of shares. However, any company that retains its memorandum which has in it a statement of authorised capital will still be limited to issuing shares only within that figure. There is now no procedure for increasing the authorised capital, other than to adopt new articles.
The new Model Articles
While any new articles can be entirely specially drafted, most will be based on the new Model Articles. The Model Articles replace Table A as a standard set of provisions set out in a statutory instrument thought by the government to contain provisions suitable for most companies. There are different sets of Model Articles for the main different types of companies, the most commonly used being the Model Articles for a Private Company Limited by Shares.
Taking an overall view of the Model Articles, the majority of provisions do not differ greatly from those of Table A in their effect, but there are some significant differences and the provisions are very differently expressed and in a completely different order from those of Table A.
Just as Table A was in fact rarely suitable for most companies without amendment, so the Model Articles will require amendment for most companies. So most companies registered from 1.10.2009, or adopting new articles from that date, will have articles that are based on the Model Articles, and use most of their provisions, but vary these in significant ways.
Table A provisions affected by the new Act
Companies registered before 1.10.2009 can continue to operate under their old memorandum and articles, but need to be aware that these do not reflect current legislation under the Companies Act 2006. The main areas affected are:
Annual General Meetings
The requirement for private companies to hold AGMs has been abolished (though companies may still hold one if they wish). Table A itself does not actually say that the company has to hold an AGM; the only reference is in article 36 which says that all meetings other than AGMs are called Extraordinary General Meetings. This provision is now redundant for some companies, but does no real harm.
Notice period for meetings
The minimum statutory notice period for meetings is now 14 days (CA 2006 s.307). Article 38 of Table A reflects the old statutory provision that 21 days notice is required for an AGM or to pass a special resolution. This remains valid as a provision in the articles, but if the company wants to be able to call an AGM or a meeting to pass a special resolution on 14 days' notice, the article will have to be amended. On the other hand, the company may be content to retain the existing provisions.
Meetings held on short notice
A general meeting (whether an AGM or and EGM) can be held on less than the 14 days or 21 days requirement if it is held on short notice, with the written agreement of the appropriate majority of members (CA 2006, sec307). Under the old law (and the old Table A) an AGM could be held on short notice if so agreed by all the members. An AGM required the consent of a majority in number holding 95% of the votes. This has now been amended so that any meeting (whether AGM or EGM) can be held on short notice with the written agreement of a majority holding 90% of the votes, unless the articles provide for a higher percentage. To take advantage of this more relaxed rule, the existing articles would have to be amended.
Chair's casting vote at general meetings
Under the new Act, a chair cannot have a casting vote at a general meeting unless the provision is very carefully worded (CA 2006, sec282). This is a major change and appears to have been brought in by accident. The exception is that any company that gave the chair a casting vote in its articles before 1st. October 2007 may retain that provision. If such a company wants to keep the casting vote, it must be careful in amending its articles to ensure that it does not lose the right to have such a provision.
Written resolutions
These have changed very substantially under the new Act, and article 53 of Table A is now redundant. The new rules (CA 2006, sec288 - sec300) are more complex and require a written resolution to be circulated accompanied by a notice explaining various matters. More crucially, written resolutions are now passed once agreed by the requisite majority of members (CA 2006, sec282), and do not require the consent of all the members. Article 53 would be seriously misleading to anyone who relies on it as a statement of the company's written resolution procedure.
Another aspect of this is that a written resolution becomes inoperative if it has not been passed within a set time (CA 2006, sec297). That period is 28 days unless a different period is specified in the articles. In many cases a shorter time, or one specified by the directors, would be more appropriate.
Proxies
A significant amendment is that a proxy now has a statutory right to vote on a show of hands (as well as on a poll), which is contrary to article 54 of Table A. This article should be changed as it is misleading.
Company secretary
A private company does not now need to have a secretary (though it may do so). Article 99 of Table A says that the secretary shall be appointed by the directors. The government's view is that this does not specifically require the company to appoint a secretary and does not require amendment. Some commentators have taken a different view. If the articles are being altered for other reasons, this should be amended for clarity.
Sending notices
There are detailed provisions in the Act for notices, resolutions, etc. to be sent by electronic means (email, fax, etc.) both by the company and to the company. Article 112 of Table A does not refer these, laying down regulations for delivery by hand or post only. The Table A provisions are overridden by the Act and so are deficient and misleading if anyone relies on them.
Provisions in a company's articles that are not in Table A
These, of course, vary from company to company, and will need to be reviewed individually. Many will contain provisions that are incompatible with the new Act. For example, some companies' articles expressly require them to hold an AGM and these will have to be amended if the company wants to take advantage of the new rules to enable it not to do so. Many companies' articles have provisions on share allotments and transfers which were drafted in the context of the 1985 Act (or earlier). As there are new statutory rules in these areas, the old provisions in the articles may well be out of date and misleading.
Summary
It would be sensible for every company to review its memorandum and articles with a view to deciding whether they should be updated. In some cases, this will be essential. In others, the decision can be deferred until the company wishes to make some other changes, and to review the articles at that time.
Getting the right provisions
Whenever the articles are updated, all the provisions should be examined to ensure that appropriate provisions are put in place. What is very important is that where two or more people are in business together, they really do need to ensure that the relationship between them, and between them is contained in appropriate articles and/or a separate shareholders' agreement. Not having the right provisions in the articles could have serious consequences at some future stage, particularly if a dispute should arise between the directors and/or shareholders of the company. Our webpage Articles of association outlines the more important provisions that should be considered.
Company Law Solutions Limited provides an expert service for the drafting and amendment of articles of association.
