Benefits Of Updating Old Articles

There are many arguments in favour of existing companies adopting articles under the new Act and we aim to deal with some of these below.

It must be emphasised that those companies who choose not to adopt new articles will have to continue with constraints placed by the old regime, and there will undoubtedly be many areas of confusion over which law to apply, as not all matters covered by existing articles are automatically changed by the new Act. It must be remembered that until new case law develops there may be many circumstances where conflicts occur between the old law and the new, and already, we see many professional advisers recommending a complete change to new articles under the CA2006.

Our fee for the adoption of bespoke new Articles under the Companies Act 2006 is £75+vat.

Updating the constitution of an existing company to comply with the Companies Act 2006 is widely recommended by professional advisers and could provide material benefits

Currently registered companies may continue to operate after 1st October 2009 under existing memorandum & articles, which will remain in force so long as they are not overridden by the provisions of the new Companies Act 2006. Knowing quite which provisions are affected requires some in-depth knowledge of the Companies Act. This is further complicated for companies registered prior to 1st October 2007 whose articles, if not amended contain a number of provisions which vary from those incorporated after that date and which have been subsequently overridden by the new Act. These factors alone raise questions as to how far the new law will apply to existing companies and will undoubtedly lead to continued doubt over the correct course of action in various circumstances.

The new model articles contained in the CA2006 do not provide sufficient content and guidance for companies, and it is arguable that they are far too simplified for practical purposes. For example:

• the model articles do not allow for the issue of nil or partly paid shares;
• they make no proper provision for multiple classes of shares;
• they do not contain provisions for alternate directors which could be useful for companies where directors are to be absent for extended periods;
• they contain no provisions expressly covered by the Act such as members’ rights, proxies, meetings regimes, share pre-emption or directors conflicts, assuming instead that all directors have sufficient knowledge of the Act in detail – clearly an unreasonable assumption in the majority of owner managed businesses;
• they include no provision for the appointment of a company secretary if the company has one.

An overriding factor when considering this whole issue, is the consequential confusion that will remain where a company continues to operate under 1985 Memorandum and Articles or an earlier version.

Our bespoke Articles are prepared by senior lawyers with over twenty years’ experience as members of the Law Society Standing Committee on Company Law. They are approved and endorsed by The Association of Company Registration Agents Ltd (ACRA), who are the company registration industry’s only formal recognised body who act regularly for the representation of the industry in conjunction with the Registrar of Companies, HMRC and HM Treasury. ACRA members account for around 47% of all incorporations in the UK.

Adoption of new articles under the Companies Act 2006 will be highly beneficial for the vast majority of existing companies.

Outlined below are some specific reasons and benefits of updating company memorandum and articles to our new bespoke version of the articles under the Companies Act 2006:

OBJECTS
Under the Companies Act 2006, the contents of an existing company's memorandum of association will be treated as a restriction on the business activities of the company. The memorandum can be imported into its articles, but there is some confusion as to how this will look in practice and as a consequence, many companies will propose special resolutions to delete the entire contents of the memorandum and adopt new Articles under the Companies Act 2006.

SHARE CAPITAL
The authorised share capital of an existing company will in future act as a limit on the number of shares that the Directors can issue unless it is removed. This is in conflict with the intention behind the Companies Act 2006 that there should be no limit on the number of shares available unless one is imposed through the articles. This restriction can be lifted by adopting new articles.

If companies want to restrict the subdivision, consolidation, redemption or repurchase of shares, they will have to provide for this expressly in their articles. This is a reversal of the previous position under Companies Act 1985.

SHARE PRE-EMPTION RIGHTS
Many companies, possibly a majority of those registered under older Acts, have articles that contain no rights of pre-emption, either on allotment or transfer of shares. The new Act contains provisions of pre-emption that may be overridden by existing provisions within older articles. The adoption of new articles ensures this important factor is properly covered and detailed within the articles so that the new provisions are clearly understood by shareholders. Where companies have no such provisions already in place, this is a perfect opportunity to introduce this vital feature for the protection of shareholders.

DIRECTORS
Adoption of new Articles will allow companies to:

• permit directors to sanction conflicts of interest of a director without the need of shareholder approval;
• specify statutory obligations of directors in respect of personal interests in contracts and transactions;
• specify and extend the scope of indemnities to company officers;
• remove references to the retirement of directors by rotation.

MEETINGS
Adoption of new Articles will allow companies to:

• take advantage of some or all of the modernising provisions of the new Act, such as the ability to send and receive notices and/or forms of proxy by email or other electronic means, to hold telephone board meetings, or even meetings by mobile phone text;
• take advantage of the shorter time frames (14 instead of 21 days) for calling meetings at which special resolutions are to be passed, and for lower thresholds for calling meetings at short notice (90% instead of 95%). If they retain Companies Act 1985 Table A type articles, companies are likely to find themselves restricted to longer time frames and higher thresholds;
• remove references to annual general meetings and extraordinary general meetings;
• ensure that any provisions relating to the passing of written resolutions mirror the provisions of Companies Act 2006;
• remove out-dated restrictions on the rights of members based outside the UK to receive notices of meetings;
• inform shareholders of their extended rights to appoint proxies under the new Act.

In conclusion the Companies Act 2006 simplifies corporate life in many respects, but will be likely to cause further confusion should a company decide to retain its existing memorandum and articles. The full benefit of this simplification and clarity will only materialise when a company takes action in order to take full advantage of the new Companies Act.