Calling in isn’t for everybody, so we thought it would be a good idea to share answers to our most popular questions on a monthly basis.
See our other helpline articles here.
Do all pre-CA 2006 companies have to adopt new Articles?
The Companies Act 2006 introduced changes to the Memorandum and Articles of Association of a company and as a starting point it is important to note how these effect companies that were incorporated under the old law (the Companies Act 1985 or earlier Companies Acts), and which haven’t updated their Articles in line with the current law.
- The Memorandum under the current law merely states that subscribers whom wish to form a company have to agree to become members of the company. It therefore follows that under the current law a company has unrestricted objects (they are no longer specified in the Memorandum). However, if a company has objects stated in its Memorandum (i.e if incorporated under the old law) then these are deemed to form part of the Articles and could restrict how the company operates. This is one reason why it is sensible to adopt new Articles. It is worth noting that there are certain instances where a company will be formed with objects stated in its Articles, for example a Flat Management Company or Special Purpose Vehicle.
- The concept of an authorised share capital has been abolished under the current law, but where an authorised share capital is stated in the Memorandum then this acts as a restriction on the maximum number of shares a company can allot. Understandably this restriction can cause problems for companies wishing to issue further shares, and is another reason why a company would need to adopt new Articles.
- Under section 550 of the Companies Act 2006 the directors of a company with one class of shares have the power to issue shares without any further authority. However, if the company was formed under the old law then the authority will not automatically apply and will need to be given by the shareholders, by the passing of an ordinary resolution or by adopting new Articles.
- It is no longer a requirement for companies to hold an Annual General Meeting (AGM) – they are now referred to as “General Meetings” – and it is possible for older private companies to take advantage of this new rule, but this will be subject to the provisions of the Articles. If they specifically require the company to hold an AGM then the company cannot follow the new rules until the Articles are amended. Please note that some types of private company (for example, property management companies) may still want to keep the requirement for an AGM despite the new rules, as this is a good opportunity to communicate with shareholders. The Articles prescribed by the Charity Commission for limited by guarantee companies registered as charities also require such companies to hold AGMs.
As noted, it is prudent for companies to adopt new Articles in line with the current law, but there is no specific requirement that they have to be. It is often the case that companies update their Articles when one of the scenarios outlined above occur.
If you are unsure whether your Articles allow you to undertake a desired action, particularly for Companies incorporated under the old law, please call our helpline for further advice.
At Quick we’re always happy to help. Should you have any questions please do not hesitate to contact us by email or phone. Alternatively, visit our FAQs and Guides.
Telephone: 0844 376 3333