New Companies Act: All change on Articles of Association

Companies would be wise to review their articles and memorandum of association as the countdown begins to further changes being introduced under the Companies Act 2006 later this year, writes Asil Albayaty. From 1 October 2009, the memorandum of association will consist only of a statement that the subscribers wish to form a company and take at least one share in that company.

For existing companies, the majority of provisions formerly contained in the memorandum will be deemed part of its articles of association and they will not need to make filings at Companies House to reflect this transfer.

The memorandum currently provides the company’s objects and for new companies, the default position under the Act is that their objects are unrestricted.  Some newly incorporated companies, particularly those that do not trade, such as freehold management companies, may wish to continue to restrict their objects.

Existing companies may also wish to take advantage of this change by resolving to remove a statement of objects from their articles that were previously in the memorandum. To do so, they will need to obtain shareholders’ agreement and will be required to give notice of such a change to the registrar.

The present style of memorandum also sets out the company’s authorised share capital (ASC). From 1 October 2009, new companies will no longer be required to have an ASC but must instead deposit an initial statement of capital when incorporating, which they will need to update each time new shares are issued.

There will be no ceiling on the amount of shares a company can issue and shares can be created and allotted by board resolution, subject to any necessary shareholder authorisation or any restriction in the company’s articles.

Shareholders can, however, restrict the number of shares that can be issued by including a suitable provision in the articles.

For existing companies, the ASC will continue to act as a ceiling on the number of shares that can be allotted. If they wish the company to allot beyond that restriction, they will need to amend their articles to abolish the reference to the ASC.

Another change effective from 1 October 2009 will allow the directors of private companies with only one class of share to allot further shares of the same class, subject to any rights of pre-emption in the company’s articles or the Act, without prior authorisation from the members, as is currently required. 

Such companies need to amend their articles in order to exercise such powers.  Directors of public companies, and private companies with more than one class of share, will still need shareholder authority to allot shares.

By reviewing their articles now, companies can be sure that come October 1 2009, their articles are consistent and compliant with the Companies Act 2006, to avoid confusion and, where appropriate, take advantage of increased flexibility available under the new rules.

For companies that failed to update their articles last year, this review should also take into account changes now in effect made in 2007 and 2008 to ensure that they are fully compliant with all the new provisions of the Act.