On 1 October 2009, the final instalment of the Companies Act 2006 came into force. The latest changes:

  •  effectively abolish a company’s memorandum, as itbecomes just a formal statement of the founders’ intention to form the company;
  • reverse the current position on purchases of own shares, authorising directors to do so unless their articles contain a prohibition;
  • give more flexibility for directors of private companies with only one class of shares to allot shares; and
  • abolish the concept of authorised share capital.

Summarised below are some of the new provisions affecting a company’s Articles of Association.

Objects clause – for an existing company, all information currently contained in its memorandum will be treated as being part of articles. You do not need to change the articles but may choose to do so to reflect this change if making other amendments.

Entrenchment provisions – a company will be able to entrench provisions in its articles, setting out restrictions on any alteration, for example without the consent of a particular shareholder.

Authorised share capital – the Act abolishes the requirement for a company to have an authorised share capital and any statement of authorised capital in a company’s memorandum or articles will be treated as a restriction in its articles going forward.

Allotment of shares and pre-emption rights – private companies with only one class of shares will not need prior authority to allot shares and grant rights to subscribe for or convert any security into shares of that class, unless their articles require it. Some of the terminology has changed so any disapplication of pre-emption rights contained in articles may need amending.

Alteration of share capital – directors will have the authority to consolidate or sub-divide share capital unless the articles contain a restriction or prohibition. If existing articles are silent on this and the company wishes them to restrict the directors’ powers, the articles will need to be amended.

Purchase of own shares – from 1 October, a company may (subject to various restrictions) repurchase its own shares unless prohibited by articles. If a company’s articles are silent on repurchase and the company still wishes to restrict its ability to purchase its own shares, the articles will need to be amended.

Redeemable shares – the 2006 Act reverses the position of the 1985 Act for private companies and, if the company wishes to retain a restriction on the issue of redeemable shares, it will need to put a restriction in its articles. Also, the 2006 Act gives power to the board to determine (at the time of issue) the terms, conditions and manner of redemption of shares. If shareholders wish to retain this power, an additional restriction will need to be drafted in.

A further point to note is that the 2006 Act allows a private company to fund a purchase of its own shares or a redemption of shares out of capital unless restricted or prohibited by its articles.

Company name – the 2006 Act gives the directors the power to change the name of a company if authorised under its articles.

What do you need to do?

Your existing articles:

  •  may not enable your company to take advantage of the deregulatory provisions introduced by the 2006 Act;
  • may contain restrictions which will no longer apply from 1 October 2009;
  • may contain provisions which are affected by the changes; and
  • may contain out of date references to old legislation.

If you would like us to carry out a preliminary health check on your company’s constitutional documents, please contact Roger Wilkinson

The contents of this article are for the purposes of general awareness only. They do not purport to constitute legal or professional advice. The law may have changed since this article was published. Readers should not act on the basis of the information included and should take appropriate professional advice upon their own particular circumstances.