Why amend the articles of association?
The Companies Act 2006 (2006 Act) came fully into force on 1 October 2009. The Act aimed to simplify company law procedures, particularly for smaller companies. The 2006 Act does not require companies to amend their articles of association (Articles) but in order to take advantage of the simplified procedures, any company which was incorporated before 1 October 2009 (Existing Company) may wish to do so. For the purpose of this note we have focused on private limited companies, as it is this type of company which can benefit the most from the new deregulatory regime.
What amendments can be made?
- As from 1 October 2008, the requirement for private limited companies to have a company secretary has been abolished. In the past many smaller companies which were effectively a “one-man” business struggled to find someone to act as the company secretary and typically a wife or accountant would take up the role. Such persons may now wish to resign as company secretary. However, an Existing Company should ensure that its Articles are amended so as to remove any references to a requirement for it to have a company secretary. Please note that the directors need to ensure that someone still performs the tasks previously performed by the company secretary (such as filing forms at Companies House).
- Under the former Companies Acts, a company had to act within a specific list of powers (or “objects”) set out in its memorandum of association (Memorandum). These objects could limit, for example, a company’s ability to borrow money or grant security. Under the 2006 Act the objects are deemed to form part of a company’s articles but, as part of the adoption of new Articles, they can be removed. The benefit of doing this is that the company has unlimited objects and, for example, can enter into loan or security documents without the need for the directors or bank to scrutinise the Memorandum or Articles.
Authorised share capital
- Before 1 October 2009, all companies had an “authorised share capital” which was effectively a limit on the total number of shares which could be issued without seeking further approval from the shareholders. Under the 2006 Act, companies do not need to have an authorised share capital but any references to this concept in an Existing Company’s Articles or Memorandum will need to be removed if the company is to benefit from this deregulatory measure.
Allotment of shares
- The directors of private limited companies with only one class of shares can now allot shares of the same class without obtaining shareholder approval, subject to any restrictions in the Articles. Directors of an Existing Company should therefore check the Articles to ensure that there are no such restrictions.
Change of name
- Previously, a company could only change its name if the holders of 75% per cent or more of its issued shares passed a change of name resolution. Under the 2006 Act, a company is still able to change its name in this way but it can also set out in its Articles other methods for changing its name, for example, by way of a board meeting (thereby avoiding the need for shareholder approval).
What about companies incorporated after 1 October 2009?
Companies which are incorporated after 1 October 2009 should adopt articles of association upon incorporation which allow them to take full advantage of whichever aspects of the deregulatory regime are relevant. For some companies this will simply mean using the new “Model Articles” which apply by default under the 2006 Act in the absence of the adoption of specific Articles.
Existing Companies should consider amending their Articles so as to streamline certain decision making and administrational procedures. The extent to which such amendments are appropriate will vary from company to company and specific advice should be sought in each case.
It is probably quicker (and cheaper) for an Existing Company to make any amendments by adopting an entirely new set of Articles rather than making the changes piecemeal as and when a specific issue arises.