New provisions: Companies Act 2006

September 1, 2009

On 1 October 2009 the final provisions of the Companies Act 2006 will come into force, in the culmination of a reform process which will have taken some eleven years from start to finish.  For private companies in particular, the changes are intended to address the needs of “21st century” companies by further simplifying the administrative burden for those companies and enabling decision making processes which reflect today’s new technologies.

The changes include:

• The introduction of new forms of model articles of association (a company’s internal regulations) for private and public companies. The standard model articles for private companies are much shorter than the current standard, known as Table A. They are much more in tune with the reality of the decision making processes in private companies (for example, unanimous decisions of the board may be taken by the directors indicating their agreement to each other “by any means”, which in theory could extend to communicating decisions by text message), although already concerns have been expressed that the decision making process will become too informal as a result;

• Reduced importance for the memorandum of association (this document regulates a company’s dealings with the outside world). The memorandum of association of existing companies sets out the objects for which a company is incorporated (for example, to carry on business as a general commercial company or in a specific industry sector) and the powers which the company has to achieve those objects, which restrict the directors’ freedom to act. Although the memorandum of association will still be required for companies incorporated on or after 1 October 2009, it will be little more than a brief statement covering the company’s name, initial share capital and the desire to incorporate the company. In the absence of restrictions set out in the articles, a company’s objects will be unrestricted.

• An ability for companies to entrench provisions in their articles – in order to amend an entrenched provision a higher threshold for approval of the amendment may be specified than would normally apply under company law.

• For companies incorporated on or after 1 October 2009 the concept of authorised share capital, which limits the number of shares which may be issued, will be abolished.

• Where a private company has only one class of share, its directors will, unless prevented by its articles, be permitted to issue shares without shareholder approval.

• Allowing directors to provide a service address which will appear on the public records maintained by Companies House. Directors will still need to provide home addresses to the Registrar of Companies and home addresses which are already on the register as at 1 October 2009 will not automatically be removed.

• Allowing a company to simplify the change of name process – the articles may permit company names to be changed by methods other than a shareholder resolution (for example, by a board resolution).

What are the implications for existing companies? They will not need to take any actions as a result of the changes, but will remain subject to their existing articles of association until they decide to amend them. In addition, any limitations contained in a company’s memorandum of association will automatically be deemed to form part of the company’s articles with effect from 1 October 2009, unless a shareholder resolution is passed to remove those limitations.

Finally, companies in existence prior to 1 October 2009 will remain subject to their current authorised share capital, again unless steps are taken to remove this. Although existing companies are not required to take any actions as a result of the 1 October implementation, without taking steps to amend their constitutional documents they will not be able to take full advantage of the new regime.


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