Since the Companies Act 2006 (the "2006 Act") received royal ascent on 8 November 2006 its provisions have been introduced gradually and the final provisions came into force on 1 October 2009. This means that at long last the 2006 Act is in full force and effect (subject to certain transitional arrangements).
Memorandum of Association
A company incorporated after 1 October 2009 will no longer need to have a memorandum setting out the objects of that company. For any companies incorporated after 1 October 2009, the memorandum will contain a limited amount of information, stating that the subscribers want to form a company, providing the company name and setting out the initial share capital. For instance, the memorandum will provide a snapshot of the company. For existing companies, the information currently contained in its memorandum will be deemed to form part of its articles under section 28 of the 2006 Act and any existing objects will continue to apply.
Companies incorporated prior to 1 October 2009 can often have restrictive objects within their memorandum and, if such companies want to take advantage of the new more relaxed rules, they will need to pass a shareholder resolution to amend or remove those objects pursuant to the 2006 Act.
Any of the relevant information included within a company's memorandum, for instance the location of its registered office, a statement of its limited liability, the share capital and any confirmation that it is a public company, will be deemed to be incorporated into the articles.
Authorised Share Capital
From 1 October 2009, a company will no longer need to have a maximum authorised share capital.
Companies incorporated before 1 October 2009 will, however, continue to be subject to any authorised maximum capital as stated in its memorandum or as increased pursuant to any shareholder' resolutions. As directors need authority under section 551 to issue shares beyond a stated maximum, that provision of the memorandum (or articles) may quickly become irrelevant and it is advisable for companies to consider removing such provisions by ordinary resolution.
If a company does take advantage of the new provisions on authorised share capital it will need to notify Companies House of any changes by way of a new statement of capital.
Issue of Shares
The sometimes time consuming provisions in relation to the issue of shares will no longer apply from 1 October 2009. If a private company has one class of shares the directors will no longer need authority from the shareholders to allot new shares, as was the case under the Companies Act 1985 (the "1985 Act").
If a company has more than one class of shares, the directors will still need authorisation to issue those shares either in its articles of association or by a shareholder ordinary resolution.
For companies incorporated before 1 October 2009, this provision of the 2006 Act will not apply unless the shareholders have passed a resolution giving the directors powers to issue shares.
Alteration of Share Capital
Under the 1985 Act a company's power to sub-divide or consolidate its shares must have been authorised in its articles. Under the 2006 Act the position is reversed so that the company will have this power unless it is prohibited or restricted from doing so by its articles. Accordingly, an existing company whose articles do not restrict sub-division or consolidation of shares will need to amend its articles if it wants such restrictions to continue to apply.
Redemption and Purchase of Own Shares
The 2006 Act now permits companies to issue redeemable shares without a specific authority under its articles, as was the case under the 1985 Act.
A company whose articles do not contain an authority to issue redeemable shares will need to modify its articles if it wishes to continue to restrict or prohibit the issue of redeemable shares.
With respect to a purchase of own shares under the 1985 Act, a company needed to have a specific authority within its articles if it wanted the ability to do this. The 2006 Act has reversed this so that a company will automatically be permitted to purchase its own shares without the need for such an authority to be inserted in its articles. As with the issue of redeemable shares if a new company or existing company wants to continue to restrict or prohibit the purchase of its owns shares it will need to modify its articles accordingly.
Whether or not the articles authorise a power to purchase own shares this power cannot be exercised without the approval of the purchase contract by a relevant shareholder resolution.
The 2006 Act provides that a company can insert provisions into its articles allowing it to change its name without the need to obtain shareholder approval. The provisions of the 1985 Act will still apply and the 2006 Act simply gives extra rights to the directors of a company to deal with name changes.
Including a change of name procedure in the articles will not exclude the right of the shareholders to change the name by resolution. The new provisions will make name changes quicker and easier thus removing the sometimes time consuming procedure.
Directors' and Company Secretaries' Addresses
Directors are still required to provide companies with a residential address. However, the 2006 Act provides that these addresses will no longer appear on the public registry of the company, for instance, Companies House and will only be kept in a protected register. Directors will be required to make an address public but this can simply be a service address which in most cases will be the company's registered office.
Company secretaries (if a company continues to have a company secretary) still need to provide their companies with a service address but this information does not need to be provided to Companies House.
Table A of the 1985 Act has now been replaced with a new set of Model Articles, which the government has introduced in an effort to simplify company constitutions. However, as was the case with Table A, the Model Articles are basic, may not reflect the precise requirements of the company and do not include many provisions that a company may want to include in its articles, for instance, provisions for the compulsory transfer of shares.
As the 2006 Act is now fully in force this would be a good time for companies to review their constitutional documentation and consider what provisions of the 2006 Act they may wish to take advantage of. If you require further information on anything within this article or anything else arising from the 2006 Act, do not hesitate to contact a member of the corporate team.
If you would like to recap on some of the implementations that have taken place prior to 1 October 2009, please click on the links below.
- Minimum Age for directors
- Directors' conflicts of interests
- Requirements for companies to have at least 1 director who is a natural person
- Distributions under the Companies Act 2006
- Changes to the filing or circulation of accounts
- Liability limitation agreements
- Do you know what your directors' duties are under the 2006 Act?
- Changes to company procedure under the 2006 Act take effect on 1 October 2007 - Are you ready for them?
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