Wollen Michelmore: Old Articles of Association? Why the 2006 ‘Model’ should be Considered
The Companies Act 2006 (“the Act”) has been around for quite some time now and the massive changes that that Act swept in at its inception have since largely settled into a comfortable new regime that many companies, who were incorporated before the Act, now feel comfortable managing. However, in my day-to-day practice I still see the aftermath for pre-2006 incorporated companies of making that adjustment from adherence to the Companies Acts’ of the 1980s to that of the 2006 version. Occasionally, long established, well-run companies come to me unstuck because one aspect of their business that wasn’t considered when the Act came into effect was that of updating their Articles of Association.
So, why should they have been updated? Well, the Act was drafted with the intention of reducing excessive bureaucracy that was previously imposed on companies. By not updating Articles, some companies have been unknowingly shackling themselves to this out-of-date bureaucracy. One of the key changes brought in by the Act was the creation of new model articles for both private and public companies incorporated after 30 September 2009. Whilst some of the benefits under the new Act automatically came into force when the Act became effective, the 2009 model articles (together with the accompanying provisions of the Companies Act 2006 that effect the administrative burden placed on Companies beneficially) did not automatically apply to all companies once the various provisions of the Act became effective, which has been a surprising discovery for some of my clients in hindsight.
The main advantages to a company modernising its articles include but are not limited to the following considerations:
- The required notice for a general meeting has been reduced to 14 days, whereas previously it was necessary to give 21-days’ notice of a meeting convened to consider the passing of a special resolution.
- A private company need no longer hold an AGM (subject to considering whether one is necessary in practicable terms, in which case the articles can reflect bespoke requirements).
- The articles can now allow the directors of a company to authorise a conflict of interest of one or more members of the board of directors. The articles can specify the circumstances within which the directors may authorise a conflict of interest subject to certain provisos which the company can specify in its new articles.
- It is now possible for a company to change its articles to allow it to communicate with shareholders by electronic means, which is time saving in the modern age in which we all try and keep up with IT and it saves trees (and we all like trees).
- The articles of a company may allow the board of directors to make decisions in a more informal manner and without the need to hold meetings. The articles can also state which type of decisions require unanimous approval and which decisions can be made by a majority. This is of huge benefit to a great many of my clients – especially companies that are particularly large or operate on a UK-wide or international basis.
- Share capital can be tinkered with in a previously unprecedented way, as the Act gives the directors of a company the authority to allot an unlimited number of shares in the company and, for private companies, shareholder approval for share issues will no longer be necessary where a company has only one class of shares. Whilst Shareholders remain protected by rights of pre-emption which may be contained in the articles.
In the circumstances, it is always worth reviewing your company’s governing documents from time to time to ensure those documents are keeping pace with change. If change should be required, making amendments to the memorandum and articles is a very simple process that includes a company passing a special resolution and filing the necessary documents at Companies House. This can be a very worthwhile exercise as the process is not time consuming for a seasoned company solicitor to undertake and should therefore be affordable. It should also save a well-established company time and money as that company evolves yet further. At Wollen Michelmore Solicitors we have specialists in this area whom you can talk to, about this or any other company or commercial issue, please contact the writer at email@example.com; or telephone our Torquay office on 01803 835662, should you wish to discuss your company’s requirements.