Companies Act 2006 – impact on company’s constitutional documents

From 1 October 2009 companies should be anticipating significant changes to their administration and management as new provisions contained in the Companies Act 2006 come into force. One of the areas which will require a professional review and possible amendments is the company’s Memorandum and Articles of Association. This article explains the main alterations and steps which need to be taken to comply with the 2006 Act in respect of the Memorandum and Articles.

The Memorandum and Articles of Association

The Memorandum states the company’s name, registered office address, its objects (which define the company’s power and scope of activities), authorised capital, and members’ liability. As companies can act only within the scope of their objects, defining the objects should be well-thought-out.

The Articles of Association are a company’s internal rulebook. They are chosen by the company’s members and outline their responsibilities, powers, share options and other provisions critical for running the business as efficiently as possible. It is a form of a contract between the company and its members, and between each of the members, which is legally binding on the company and all of its members.

Members can decide which rules to include in their company’s Articles, provided that the rules are not unlawful, for example are not discriminatory. It is recommended to take professional advice when drafting this document.

New rules and their implications on the constitutional documents

The Companies Act 2006 imposes new obligations on all limited companies, regardless of when they were incorporated. Apart from the Memorandum and Articles of Association, companies limited by shares will also be required to have a Statement of Capital and Shareholdings (which can be incorporated into the new Articles), whereas companies limited by guarantee will need to have a Statement of Guarantee.

Companies incorporated on or after 1 October 2009 will adopt a new and simpler than previously required style of Memorandum. The new businesses will be able to decide whether to list objects for the company or leave them unrestricted. As information on capital and shareholdings will no longer be part of the Memorandum, the newly incorporated companies will be required to file the appropriate Statement containing this information with Companies House on registration. The Statement will become part of the Articles. Directors will have to remember to file updated Statements with the Registrar as necessary.

Changes to the existing documents

Directors and members of companies registered under the Companies Act 1985 or previous Companies Acts can choose whether or not they want to make changes to their constitutional documents following the introduction of the new rules. The parts of the Memorandum which are additional to the Statement of Capital and Shareholdings will automatically become part of the company’s Articles of Association.

However, if there are changes to the current Articles on or after 1 October 2009 or amendments approved at a general meeting and agreed take effect on or after that date, the relevant parts of the ‘old-style’ Memorandum and objects will have to be included too when filing the new Articles, unless they are also amended.

Changes to the share capital after 1 October 2009 should be reported in the new Statement of Capital.

Conclusion

The Companies Act 2006 brings major changes to the way the company’s constitutional documents are composed. Those who are not sure what steps their company should take to comply with the new regulations are recommended to seek advice from government organisations or specialist firms.

Copyright London Registrars plc.