OVERVIEW
The Companies Act 2006 ("CA 2006") introduced a number of key administrative and procedural requirements for private companies in the UK.
While many of the new statutory provisions offer a welcome respite for companies in terms of the administrative procedures that they are now expected to satisfy, many private companies are failing to take full advantage of these changes, as their articles of association ("articles") are out-of-date and unnecessarily prohibitive.
This briefing note will explore the extent to which a private company can maximise its efficiency by adopting new articles of association, or amending its existing articles, in order to take full benefit of the CA 2006.
REASONS WHY A COMPANY SHOULD UPDATE ITS ARTICLES OF ASSOCIATION
Remove Reference to Authorised Share Capital
The CA 2006 has amended the provisions in the Companies Act 1985 ("CA 1985") relating to authorised share capital. Under the CA 1985, directors were only allowed to issue shares up to the level of the company's authorised share capital.
Under the CA 2006, the concept of authorised share capital has been abolished, however directors continue to be prohibited from issuing shares above the level of the authorised share capital until the reference to authorised share capital has been removed from the company's articles.
Directors' Authority to Allot
Under the CA 1985, directors were required to obtain shareholder approval in order to allot any shares. The CA 2006 relaxes these provisions and states that the directors of a private company with only one class of share may allot shares without obtaining shareholder authority to allot, unless there is a specific restriction within the company's articles.
To take advantage of this relaxation, shareholders of existing private companies should pass an ordinary resolution to remove any restriction in the company's articles and ensure that the directors have the power to allot shares under section 550 CA 2006 .
Directors
New or updated articles can enable directors to change the company's name, and sanction conflicts of interest of a director, without the need for shareholder approval.
Secretaries
Under CA 2006, private companies are no longer required to have a company secretary. If the company's articles expressly require the appointment of a secretary however, this will override the relaxation. This requirement can be easily amended by updating the company's articles.
Meetings
By updating its articles, a private company can take full benefit of new provisions under the CA 2006 which relate to meetings. For example, a private company could:
- call shareholders' meetings on 14, rather than 21, days notice;
- send and receive notices and forms of proxy by email or other electronic means;
- remove out-dated restrictions on the rights of members based outside the UK to receive notices of meetings;
- hold telephone meetings; and
- stop holding annual general meetings (as any requirement for an annual general meeting in the company's existing articles will need to be removed).
Reference to Companies Act 1985
For the sake of clarity, a private company should consider updating its articles to replace old references to the CA 1985 with equivalent provisions in the new CA 2006.
Group Companies
It is worth noting that group companies will need to consider how best to amend the constitutions of the group as a whole, in order to ensure consistency with the CA 2006.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
