Companies Act 2006, What’s coming up - July 2009
The Companies Act 2006 (CA06) has been implemented over a number of dates starting from when it received Royal Assent on 8 November 2006. The final tranche of the Act comes into force on 1 October 2009, when some of the most significant changes will take place, including changes relating to a company’s constitution, formation, and share capital. The Act will also introduce new provisions relating to company books, and protection for directors’ residential addresses. This bulletin aims to cover some of the main changes and the actions you should consider taking.
Company’s formation and constitution
Shares and share capital
Change of company name
Company registers and records
The Following are the main changes which will take effect from 1 October 2009:
Company’s formation and constitution
It will be possible to form any type of company with a single shareholder. The method of forming a company (by filing certain documents at Companies House) will remain the same but the documents to be filed will change..
Memorandum of association
The content and importance of the company’s memorandum of association will change substantially. The memorandum of a company incorporated on or after 1 October will be simply a short statement of the desire of the subscriber(s) to be incorporated, company name and type and initial share capital. It will be an historical document which will not change as the company goes forward.
Objects clause
Companies formed on or after 1 October will have unrestricted objects unless they choose to include restrictions in their articles of association.
For existing companies, provisions which were previously contained within the memorandum will be deemed to form part of its articles. This includes not only the company’s objects but also provisions in the memorandum dealing with its name, location of registered office, limited liability status, authorised share capital and, in the case of a public company, the required statement that it is to be a public company. If a company wishes to remove some or all of these provisions it may do so by special resolution.
If a company’s articles are amended so as to add, remove or alter a statement of the company’s objects, that amendment will only be effective once it has been formally notified to the Registrar and entered on the register.
Articles of association
New model articles will replace the current “default” articles of association prescribed by regulation e.g. Table A for a private company limited by shares or Table C for a private company limited by guarantee. Model articles have been published for private companies limited by shares, private companies limited by guarantee, and public companies. Companies formed from 1 October can adopt the model articles with or without amendment or create their own set of articles. The articles of companies incorporated prior to that date, which in most cases will be based on Table A, will continue in force unless and until they choose to amend them.
To the extent any provisions of current articles are inconsistent with CA06, they will be overridden by the requirements of CA06.
Accordingly, an existing company may wish, to the extent it has not already done so, to review its current articles to remove any inconsistent provisions or obsolete statutory references or to update these to enable it to take advantage of certain deregulatory measures already in force (e.g. the ability of a private company to hold all general meetings on 14 days’ notice) or coming into force on 1 October 2009 (e.g. the ability to have unrestricted objects). A further bulletin will be issued on this topic in the next few months.
Key action points:
• Consider amending the articles to remove provisions previously contained in the memorandum, e.g. specific objects.
A company will no longer have an authorised share capital. Directors will create shares on their issue, and if a company wishes to have a restriction on the number of shares which can be issued, it will need to amend its articles, requiring a special resolution.
The statement of the authorised share capital, which previously formed part of the memorandum, will from 1 October be deemed to be incorporated in the company’s articles. This will be regarded as a limit on the number of shares which the directors are authorised to allot, which can only be varied or removed by an ordinary resolution of the shareholders, or by adopting new articles (special resolution).
Allotment of shares
Where the company is a private company with only one class of shares, the directors will have the authority to allot shares provided the articles do not restrict this. This removes the current requirement for the directors to have prior authority from the company’s members for an allotment. However, directors of existing companies will not have this new power unless it is given by ordinary resolution.
For all other companies, an authority to allot in similar terms to that currently required will need to be obtained. Where existing companies already have authorities in place, these will be treated as continuing under CA06 until their due expiry date.
A private company will no longer be able to pass an elective resolution that the directors’ authority to allot shares is given for an indefinite period (although any authority given pursuant to an elective resolution before 1 October will continue to apply after that date).
The current pre-emption right regime, whereby, subject to certain exceptions, shares proposed to be allotted must be offered first to existing shareholders pro-rata to their current holdings, and the ability to disapply statutory pre-exemption rights, is largely restated under CA06.
Where the company is a private company with only one class of shares the directors may be given power by the articles or by a special resolution to allot shares as if the statutory pre-emption provisions do not apply to the allotment or apply with such modifications as the directors may decide.
Redemption of shares
Private companies (whether formed under CA06 or existing companies) will no longer require authority in their articles to issue redeemable shares Public companies will still need to have this authority in their articles. From 1 October 2009, the terms and manner of redemption need no longer be specified in the articles or an ordinary resolution, provided that these matters are determined by the directors before the shares are allotted.
Purchase of own shares
A company will no longer need authority in its articles to purchase its own shares. The CA06 will authorise both public and private companies to purchase their own shares (subject to any restriction or prohibition in the company’s articles). So, contrary to the current position, if a company’s articles do not prohibit the company from purchasing its own shares, it will be authorised to do so.
In connection with a purchase of own shares funded out of capital, the requirement for a statutory declaration will be replaced with a requirement for a directors’ statement on the same matters. In making their statement, the directors will need to take account of all the company’s liabilities, including any contingent or prospective liabilities.
Key action points:
• Consider amending articles to remove or vary the limitation on amount of shares which may be allotted.
• Consider giving directors authority to determine terms and manner of redemption of shares.
• If the company has only one class of shares:
Consider passing ordinary resolution to give directors general power to allot.
Consider amending articles or passing special resolution to give directors power to allot shares without the statutory pre-emption provisions applying.
• Consider passing an elective resolution prior to 1 October giving directors authority to allot shares for an indefinite period.
• If the company wishes to restrict or prohibit the purchase of its own shares check whether appropriate provisions need to be inserted into the articles.
Companies will be able to include in their articles of association mechanisms for changing their name other than by special resolution, which is currently required. For example, the articles could provide that the name be changed by ordinary resolution or by resolution of the board of directors. This should make it quicker and easier for companies to change their name.
Key action points:
• Consider amending the articles to include alternative provisions for changing the company name.
A number of changes have been made as regards the company’s register in terms of content, location and inspection..
Directors
Married women are no longer exempted from the need to disclose their former names. The register must also contain details of the country in which the director is usually resident, and a service address for each director, which can be the company’s registered office. There will no longer be requirements to record details of shadow directors in the register of directors, or details of a director’s other directorships.
There is a new requirement for every company to keep a register of directors’ usual residential addresses. This is protected information which must not be disclosed or used by the company other than in certain limited circumstances.
The company will be required to file both the service and the usual residential address at Companies House but the residential address will be protected information, which will only be provided to public authorities and to credit reference agencies in accordance with specified regulations.
It should be noted that references to a director’s home address in previous documents on the registers will not be removed, so until a director moves from that address it will still be on the public record.
Company Secretary
Company secretaries will only need to notify a service address to the company and the Registrar, not their “usual residential address” as is currently required. The address currently given for a director or secretary will be deemed to be a service address after 1 October 2009.
Location
Currently, some of the company’s registers, such as the register of members, may be kept at the place where they are maintained (often the offices of the company’s registrars) but others, such as the register of directors and secretaries, must be kept at the registered office.
Key action points:
• Split register of directors and secretaries into 2 discrete registers.
• Create and complete new register of directors’ usual residential addresses. Ensure this is kept confidential.
• Include the directors’ country of residence on the register.
• Remove details of shadow directors from register of directors.
NON-COMPLIANCE WITH THE REQUIREMENTS INCURS A CRIMINAL PENALTY FOR THE COMPANY AND EVERY OFFICER IN DEFAULT
This bulletin touches on the key changes to be introduced by the Act in October. If you have any queries arising out of the above or on the numerous other changes, please speak to:
Caroline Williams
0115 934 3986
caroline.williams@freethcartwright.co.uk
Paul Thorogood
0115 935 0361
paul.thorogood@freethcartwright.co.uk