9 October 2009
Articles of association update – 1st October 2009
One of the key aims of the Companies Act 2006 was to modernise and simplify company law and, in particular, to introduce a less regulated regime for private companies. From 1st October 2009 new model articles will be introduced for private companies limited by shares as the remaining provisions of the Act are brought into force. However, despite the new articles offering a more relaxed regulatory environment, many of the changes will not apply automatically to existing companies.
The new model articles
The new articles being introduced for private companies are significantly shorter than those currently in force, comprising only 53 clauses, rather than the 118 regulations contained in the current provisions. They will apply as the default set of articles for those companies formed on or after 1st October 2009, with those formed before 1st October 2009 continuing to operate under their existing Articles of Association. This will mean that, dependent on the age and type of your company, you may need to make changes to the existing articles in order to reap the benefits of the more relaxed system.
Reasons to make the changes now
No restriction on business activity: From 1st October the objects clause and the capital clause of the Memorandum will automatically be deemed to be part of the company’s articles of association. If you are planning to form a new company under the 2006 Act you will have unlimited capacity and will therefore be able to carry on any lawful business activity. By contrast, the objects of an existing company will operate as a restriction on the business the company may undertake. To ensure that your objects are unrestricted, preventing any hindrance on the future development or expansion of your company, you should look to amend the articles.
No limit on share issues: Although the Act dispenses with authorised share capital, under the transitional arrangements the authorised share capital of an existing company will act as a limit on the number of shares which the directors can issue. This limit can be removed by amending the articles.
No requirement for an AGM: Private companies are no longer required to hold an AGM unless there is a specific requirement to do so in their articles. If your company was incorporated before 1st July 1985 and your articles have never been updated the requirement to hold a general meeting as your company’s annual general meeting each year will still apply.
Company’s articles overridden by the Act
In addition, certain provisions of the Act will override your company’s articles of association, including the following:
- A provision permitting the directors to refuse to register a transfer of shares without giving any reason is no longer acceptable. A reason for the refusal must be given in writing within two months.
- The rules relating to the right to appoint proxies have been changed.
- Articles will contain references to concepts not mentioned in the 2006 Act. By changing the articles the redundant terminology can be removed.
- There is now a statutory procedure for passing written resolutions so any non-statutory procedure contained in the articles should be removed to avoid confusion.
Other provisions of the Act such as the reduced length of notice required for general meetings are subject to the company’s articles.
Act now…
In light of these changes, it will be in the interests of the majority of private companies, who have not already done so, to review their Articles of Association. There are clear benefits to be gained in terms of reducing the risk of error by updating your articles, bringing them in line with the new Act.
UHY Hacker Young have developed a standard model which can be adopted in place of your company’s current articles. However, it would be advisable for us to undertake a review of your articles to ensure that particular arrangements set out in the current articles are carried forward. We therefore offer a bespoke service to tailor the new articles to your particular needs, for example by including pre-emption rights on the allotment and/or transfer of shares, or enabling a majority shareholder to compel a minority shareholder to sell his or her shares in certain circumstances.
If you would like more information or advice in this area, please contact a member of our company secretarial team.
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