Biggart Baillie Solicitors

Articles of Association - Changes for 2009

Thursday, February 12, 2009

by Derek Ellery

October 2009 brings the final instalment of The Companies Act 2006 into force and companies need to review their Articles of Association in light of the new legislation. 

Our clients have been asking what are the key issues for companies.  Every company is different but all companies with more than one shareholder should be thinking about the following points:-

1. The Company’s Powers

At present what the Company can and cannot do, is set out in its Memorandum of Association.  The objects of a company are usually very wide ranging allowing anything from coal mining to running an airline.  From October, the Memorandum will only record the names of the initial subscribers of shares in the Company and the number of shares that they have subscribed for.  All other information currently contained in the Memorandum will automatically be deemed to be transferred into the Company’s Articles of Association. 

The Act also states that from 1 October unless the Articles provide otherwise, companies will have unrestricted powers and will therefore be able to carry out any kind of business they wish so.  In effect this removes the need for a long list of powers.  Companies should be passing a resolution to remove the list of objects and in addition if there is anything shareholders particularly wish the Directors not to be able to do, they should specify this in the Articles.

2. Changing the Name

Currently a change of name requires a special resolution of the shareholders.  The Articles should be updated to allow the Directors to pass a resolution to change the Company’s name.

3. Authorised Share Capital

The 2006 Act abolishes the requirement for a company to have an authorised share capital and Articles should be amended to reflect this.  The new Act also removes the requirement for shareholder authorisation for allotment of shares unless after any such allotment, the Company will have more than one class of shares.  Articles should be amended to ensure that where shareholders wish to be consulted on allotments of shares, this is provided for and consideration should be given to whether or not a cap on the Directors’ power to allot should be included. 

4. Redeemable Shares

Currently a Company choosing to issue redeemable shares must have contained in its Articles the price at which such shares will be redeemed and details of the redemption process.  The 2006 Act allows Directors to determine such matters if they are authorised to do so by the Articles.  Companies should take advantage of this as it will shorten and simplify Articles and Directors will still be obliged to set the terms prior to any such allotment taking place with the details being submitted to Companies House along with details of the allotment.  

5. Consolidating, Sub-Dividing and Purchasing Shares

At present companies need specific provisions in their Articles to allow them to do certain things, such as consolidating or sub-dividing their share capital or purchasing their own shares.  From October, the Company will not require any such enabling provisions and these can be deleted again simplifying the Company’s Articles.  Shareholder consent will be needed for any of these activities where required by the Act so protection for investors remains.

6. Employees

From October Directors may only make provision for employees or former employees in connection with the cessation or transfer of the whole or part of the Company’s business if they are authorised to do so by the Company’s Articles or by the Company in General Meeting.  Articles should be amended to allow this power to be exercised if it should be required. 

7. Register of Transfers

Often Articles currently permit that Directors can suspend registration of transfers for up to 30 days in any one year.  The new Act requires that transfers have to be registered as soon as practicable and therefore any power to suspend registration of transfers should be removed from the Articles.

8. Vacation of Office

Articles usually set out specific circumstances in which Directors must vacate their office.  These should be updated to reflect the more modern approach taken in the new model Articles contained in the Act.

Companies should be looking at reviewing their Articles of Association and having discussions with shareholders in advance of October.

If you have any queries in relation to the changes required or if you wish to discuss amending your Articles, please contact Derek Ellery at dellery@biggartbaillie.co.uk or 0141 228 8000.