Articles of Association
Updating of Articles of Association
On 1 October 2009 all provisions of the Companies Act 2006 came into force. With it’s “think small first” approach, significant changes to the governance and proceedings of private limited companies have been brought about. Table A of Companies Act 1985 has now been replaced with Model Articles of Association for private and public limited companies.
If a company was incorporated before 1 October 2009 under the old Companies Act 1985, it may continue to operate under its existing Articles of Association. However, it is recommended that in order to take full advantage of the benefits offered by Companies Act 2006 you should update the Articles of Association. For example, if a private company wishes to have no AGM or no secretary as the default, then it will need to amend its constitution. The articles of association based on Table A of the older Act 1985, have a ‘cap’ on the number of new shares a company can issue (authorised share capital). In the new provisions, the authorised share capital has been abolished. Instead, the issued share capital is the share capital of the company.
Updating of Articles to eFormations Standard Articles of Association
At eformations we help you update the company’s articles in accordance with the Companies Act 2006. Our standard articles of association are based on model articles with some modifications. The features of our articles are:
- Full powers to give notices and hold meetings by electronic communication;
- Unrestricted objects;
- Power to allot shares as nil, partly or fully paid;
- Premption rights on allotment of new shares, this means that when a company issues new shares, they must be first offered to existing shareholders;
- Directors may appoint alternate directors;
- Director’s power to refuse to register any proposed transfer of shares;
- The chairman has a casting vote in the event of a split decision.
Our fee: £75 + vat
Using Special Provisions
Examples of some other optional provisions we can provide are:
- Pre-emption rights on transfer of shares, i.e. shares are offered to existing shareholders first
- Unrestricted transfer to family members.
- Multiple classes of shares
Our fee: £100 + vat
Further information about Companies Act 2006
Below are some abbreviated notes on some of the changes brought about by the new legislation, affecting the articles of association of a private company limited by shares. This list is by no means exhaustive.
1. New Model Articles replace Table A
Separate sets of model articles for private and public companies limited by shares are provided. In addition, for the first time, there is a separate set of model articles for companies limited by guarantee.
2. Company secretary is no longer required by a private company
Previously all companies are required to have a company secretary. The Act provides that private companies no longer are required to have a company secretary. However, if a private company decides to appoint a company secretary, then the authority of a private company secretary will be the same as that of a public one. Therefore, the appointment of a company secretary to a private company must be notified to the registrar of companies and be recorded in the company’s register of secretaries.
3. Simplified decision making process
The decision-making process of the private companies will be simplified by removing the statutory requirement of holding AGM and making it easier to take decisions by written resolutions.
Under the 1985 Act, private companies can resolve to use the elective regime to dispense with some of the formalities such as holding AGM, laying accounts, etc. The Act sets the elective regime as a default position for the private companies. To put it another way, no AGM will need to be held unless the company makes a positive decision to do so. It must be noted, however, members holding 10% of the voting rights can request a company to hold an AGM.
Previously, written resolutions must have unanimous consent of the members. The Act provides that the normal rule for special and ordinary resolutions will apply to written resolutions; in other words, a simple or 75% majority will be suffice to pass a written resolution.
4. Simplifying capital maintenance provisions through abolishing prohibition on financial assistance for private companies purchasing their own shares and introducing a simpler mechanism for capital reductions.
The Act implements the recommendations of The Company Law Review (CLR) by introducing a number of deregulatory measures to remove rules which appear unnecessary and disproportionate for private companies including the financial assistance rules. Private companies will be able to give financial assistance for the purchase of their own shares subject only to the restriction or prohibition in their articles.
The Act introduces a new regime whereby a private company may now avoid the necessity of going to the court by utilising a new procedure under which share capital can be reduced through a special resolution of the members supported by a solvency statement made by the directors.
The Act also remove the shareholders’ approval for allotment of shares and empowers the directors to allot shares as they see fit subject only to the pre-emption rights and on condition that the company will have only one class of shares after the proposed allotment.