Benefits of updating the articles of association of a private company limited by shares to comply with the Companies Act 2006
Updating the constitution of an existing company to comply with the Companies Act 2006 is widely recommended by professional advisers and could provide material benefits.
The remaining provisions of the Companies Act 2006 come into force on the 1st October 2009, which include the introduction of a new model form of articles of association for private companies limited by shares (with alternative forms for companies limited by guarantee and public limited companies). To respond and take full advantage of the changes professional advisers may deem it necessary to encourage clients to update their articles of association.
Currently registered companies may continue to operate after 1st October 2009 under existing constitutions which will remain in force so long as they are not overridden by the provisions of the new Companies Act 2006.
The articles of association 7side will be providing for use under the Companies Act 2006 will be based on the new model articles and drafted by Richard Paton. Richard is an eminent lawyer who has been a member of the Law Society Standing Committee on Company Law for over 20 years. He is also a contributor to the City and Financial Publishing Practitioner’s Guide to “The Company Law Review”.
Outlined below are some reasons and benefits of updating company constitutions to 7side’s new articles of association:
- The main reason is that under the Companies Act 2006, the contents of an existing company's Memorandum of Association will be imported into its Articles. There is some confusion as to how this will look in practice and as a consequence, many companies are proposing special resolutions to delete the entire contents of the imported Memorandum with effect from 1st October 2009 and to adopt new Articles under the Companies Act 2006.
- In addition, part of the thinking in adopting new Articles is that the authorised share capital of an existing company will in future act as a limit on the number of shares which the Directors can issue in the future, unless it is removed. This is in conflict with the intention behind the Companies Act 2006 that there should be no limit on the number of shares available unless one is imposed through the Articles.
- There is then the issue of Directors' conflicts of interests: If an existing company has not passed an ordinary resolution allowing the disinterested Directors to sanction a situational conflict of interests under section 175 of the Companies Act 2006 (as allowed by the transitional provisions in the Commencement Order), then there is a good argument that the opportunity should be taken to adopt new Articles which provide for this, and deal with the problem of disclosure of confidential information.
- Companies may want to take advantage of some or all of the modernising provisions of the new Model, such as the ability to send and receive notices and/or forms of proxy by email or other electronic means, to hold telephone Board meetings, etc.
- Companies will likely want to take advantage of the shorter time frames for calling meetings at which special resolutions are to be passed and for lower thresholds for calling meetings at short notice-if they retain Companies Act 1985 Table A type articles, they may find themselves restricted to longer time frames and higher thresholds.
- Companies may want to remove references to annual general meetings and extraordinary meetings; they may likewise want to remove references to the retirement of directors by rotation at annual general meetings etc.
- Companies may want to remove references to company secretaries if they elect not to appoint one.
- Companies will want to make sure that any provisions relating to the passing of written resolutions mirror the provisions of Companies Act 2006.
- If companies want to restrict the subdivision/consolidation/redemption or repurchase of shares, they will have to provide for this expressly in their articles (a reversal of the previous position under Companies Act 85).
In conclusion the Companies Act 2006 does simplify corporate life in some respects. However, steps must be taken to take full advantage of it.
Tel: 029 2045 1444 |
