UK: Companies Act 2006: Changes On 1 October 2009

Last Updated: 6 October 2009
Article by Peter Bateman

On 1 October 2009 virtually all sections of the Companies Act 2006 that have not yet been implemented come into force. The main areas of change are in relation to the formation of companies, the memorandum and articles, share capital, and directors' home addresses.

Key changes include:

  • The objects of companies formed on or after 1 October 2009 (New Companies) are unrestricted unless restrictions are specifically inserted into the articles. Companies formed before that date (Existing Companies) can avoid future concerns that they are acting ultra vires by deleting all of their existing objects.
  • There are three new sets of Model Articles: for a public company limited by shares; a private company limited by shares; and a private company limited by guarantee. The relevant Model Articles apply to a New Company unless its members choose to exclude or modify them.
  • Table A 1985 (and earlier versions) remain in force, so Existing Companies with Table A-based articles do not need to adopt new articles. They may, however, choose to update their articles by adopting some or all of the Model Articles. Other changes should also be considered.
  • Existing Companies should consider removing the limit on allotting shares derived from their pre-October authorised share capital.
  • An Existing Company that is private and with only one class of shares can give the directors unlimited power to allot new shares.
  • Technical changes to definitions relating to share capital. The wording of shareholder resolutions to authorise directors to allot shares, and to disapply pre-emption rights, will need to be brought into line with the new terminology.
  • The protection currently afforded to directors who have a confidentiality order is, in general terms, extended automatically to directors of all companies. All directors should provide a service address (such as the company's registered office) to the company secretary. Those at serious risk of violence or intimidation should consider applying for an order to remove their residential address from post-2002 documents filed at Companies House and/or an order to prevent their home address being disclosed to a credit reference agency.

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Full Article

On 1 October 2009 virtually all sections of the Companies Act 2006 that have not yet been implemented come into force. The main areas of change are in relation to the formation of companies, the memorandum and articles, share capital, and directors' home addresses.

Key changes include:

  • The objects of companies formed on or after 1 October 2009 (New Companies) are unrestricted unless restrictions are specifically inserted into the articles. Companies formed before that date (Existing Companies) can avoid future concerns that they are acting ultra vires by deleting all of their existing objects.
  • There are three new sets of Model Articles: for a public company limited by shares; a private company limited by shares; and a private company limited by guarantee. The relevant Model Articles appy to a New Company unless its members choose to exclude or modify them.
  • Table A 1985 (and earlier versions) remain in force, so Existing Companies with Table A-based articles do not need to adopt new articles. They may, however, choose to update their articles by adopting some or all of the Model Articles. Other changes should also be considered.
  • Existing Companies should consider removing the limit on allotting shares derived from their pre-October authorised share capital.
  • An Existing Company that is private and with only one class of shares can give the directors unlimited power to allot new shares.
  • Technical changes to definitions relating to share capital. The wording of shareholder resolutions to authorise directors to allot shares, and to disapply pre-emption rights, will need to be brought into line with the new terminology.
  • The protection currently afforded to directors who have a confidentiality order is, in general terms, extended automatically to directors of all companies. All directors should provide a service address (such as the company's registered office) to the company secretary. Those at serious risk of violence or intimidation should consider applying for an order to remove their residential address from post-2002 documents filed at Companies House and/or an order to prevent their home address being disclosed to a credit reference agency.

FORMATION OF COMPANIES

A company is formed under the new Act where the application to register is received by Companies House on or after 1 October 2009. Application is made by filing a Form IN01 (which replaces Forms 10 and 12 under the 1985 Act), accompanied by the new-style memorandum and the proposed articles. As at present, a public company must obtain a trading certificate.

Only one subscriber is needed to form a company, whether public or private. (Under the 1985 Act, a public company had to have at least two members.)

Memorandum of companies formed under the 2006 Act (New Companies)

The new-style memorandum is a simple document that simply records the intention of each subscriber to form a company and to take at least one share. It cannot contain any objects. The objects of a New Company are unrestricted unless the members choose to restrict them by inserting provisions into the articles (e.g. because the company is a charity, or set up for a special purpose). A company with unrestricted objects has corporate capacity to do anything that is not unlawful.

Memorandum of companies formed under the 1985 Act (Existing Companies)

On 1 October 2009 all provisions that on 30 September were in the memorandum of an Existing Company, other than the statement that the subscribers intend to form a company and to take at least one share each, are imported into the articles by virtue of section 28 CA 2006. This means that the objects (as well as the statement of the company's authorised share capital and the statement limiting the liability of members to any amounts unpaid on their shares) are treated as forming part of the company's articles. But until the company subsequently amends its articles and sends to Companies House a copy of the amended articles incorporating the provisions brought across from the memorandum, none of them will appear on the face of the articles. (See below under Filing requirements where articles are altered on or after 1 October.)

From 1 October an Existing Company can amend or remove objects brought across from the memorandum by either:

  • passing a special resolution to adopt new articles that do not contain the undesired objects; or
  • passing a special resolution to amend the articles by deleting the undesired objects.

If on or after 1 October 2009 an Existing Company receives a request from a member to provide a copy of its constitution, it can either (i) provide a copy of its pre-1 October 2009 articles together with an extract of those provisions from its memorandum that are imported into the articles (and not then deleted); or (ii) provide a copy of its pre-1 October 2009 articles together with a complete copy of its old-style memorandum, with those provisions that have been imported indicated appropriately.

Articles of association of a New Company

The relevant set of Model Articles (for a public company limited by shares; a private company limited by shares; or a private company limited by guarantee) applies by default. But, as with Table A 1985, the members can choose to exclude the Model Articles entirely or to apply them with modifications.

Private company Model Articles

The Model Articles for a private company limited by shares are very simple, and designed to be used by the smallest, least sophisticated, companies. To keep them short, various provisions have been left out; for example:

  • The period of notice required for a general meeting, and various rules for voting by proxy and on a poll – because they are dealt with in Part 13 of the 2006 Act. The Model Articles assume that the company will not hold AGMs.
  • Authority for the company to purchase its own shares, and to reduce its share capital – because under the 2006 Act a company has power to do so unless its articles say otherwise.
  • Provisions dealing with partly paid shares, and the appointment of alternate directors – because most small private companies are unlikely to need them.

To make it easier for board resolutions to be passed informally, the Model Articles make clear that telephone board meetings are permitted and, in addition to majority vote at a meeting and all eligible directors signing a resolution circulated in writing, allow a resolution to be passed where all eligible directors "indicate to each other by any means that they share a common view".

Public company Model Articles

The Model Articles for a public company limited by shares are longer and more sophisticated. For example, they cater for partly paid shares, alternate directors, and retirement of directors by rotation. Unlike the private company Model Articles, board resolutions can only be passed at a meeting or by circulating a written resolution to all eligible directors. Although they provide for dematerialised shares, they are not suitable for use by a listed or AIM company. Some provisions (such as the article dealing with share warrants) could, however, be extracted for use.

Comparison with Table A 1985

In September BIS published guidance on company constitutions under the 2006 Act. It includes brief commentary on the Model Articles and a table indicating where, and to what extent, provisions in Table A 1985 are replicated in the three sets of Model Articles.

All versions of Table A, and the Model Articles, can be found on Companies House website.

Articles of Existing Companies

Table A 1985 (and earlier versions) remain in force, so Existing Companies with Table A-based articles do not need to adopt new articles. They may, however, choose to update their articles by adopting some or all of the Model Articles. Other changes could also be considered: see the Action Points at the end of this note.

Filing requirements where articles are altered on or after 1 October

An alteration to a company's objects is not effective until notice (Form CC04) is given to the Registrar of Companies and that notice is entered on the Register. Any alteration to the articles requires a copy of the amending resolution to be filed together with a copy of the articles as amended. Where articles are amended by special resolution on or after 1 October, the amended copy of the articles must incorporate those provisions brought across from the memorandum on 1 October that have not subsequently been deleted. Incorporation means either copying out the provisions into the amended articles or submitting, alongside the amended articles, a copy of the memorandum marked to show which provisions have not been deleted.

Statement that members' liability is limited

All limited companies will want to ensure that after 1 October their articles (continue to) contain a statement that the members' liability is limited to any amounts unpaid on their shares. Each set of Model Articles under the 2006 Act contains such a statement. For companies formed under the 1985 Act such a statement should be found in the memorandum and on 1 October it is brought across into the articles by section 28 CA 2006 although, as noted above, the statement will not appear on the face of the articles until they are subsequently amended and a copy of the amended articles is filed at Companies House.

It is important not to delete the statement of limited liability by accident – for example, by passing a special resolution to delete from the articles all of the provisions from the memorandum that are brought across by section 28, without then adding such a statement back in; or by adopting a new set of articles that does not contain such a statement.

SHARE CAPITAL

Authorised share capital

Under section 2(5)(a) the 1985 Act a company limited by shares had to state in its memorandum the amount of share capital with which it proposed to be registered and the number and nominal value of the shares into which it is divided (known as its authorised share capital). Where this was subsequently altered, by ordinary resolution, the company had to file at Companies House a copy of the memorandum containing the altered authorised share capital.

New Companies

On 1 October section 2(5)(a) is repealed and not replaced. For a New Company there is therefore no limit on the amount of share capital that can be issued (i.e. there is no equivalent to authorised share capital) unless the members choose to impose a limit through a provision in the articles. Assuming that no such limit is imposed, the amount of share capital that can be allotted by directors of an Existing Company is circumscribed only by the extent of any authority given by shareholders by means of an ordinary resolution, or provisions in the articles, pursuant to section 551 CA 2006 (the equivalent of section 80 CA 85) – see below under Allotment of Shares.

Existing companies

On 1 October the statement in the memorandum of the amount of authorised share capital (which should reflect the position on 30 September) is imported into the articles by section 28 CA 2006 and treated as a provision setting the maximum amount of shares that can be allotted. From that date, an Existing Company can revoke (i.e. delete) or increase that maximum by either:

  • passing a special resolution to amend the articles, or to adopt a new set of articles, so that they no longer contain any maximum (or so that they contain a higher maximum); or
  • passing an ordinary resolution to that effect.

But simply passing a resolution under section 551 CA 2006 to grant the directors authority to allot shares of an amount exceeding that maximum will probably not be effective, and any allotment made pursuant to such an authority may be void.

In order to avoid the risk, on a subsequent issue of shares, of overlooking the maximum (i.e. the old authorised share capital) brought across into the articles by section 28, most companies should consider deleting it on the first convenient occasion after 1 October.

Allotment of shares

Except for the changes described below, the 2006 Act broadly replicates the regime under the 1985 Act. However, where shares are allotted for non-cash consideration, it is no longer necessary to file a copy of the contract at Companies House.

New Companies

For a New Company that is private and has only one class of shares, the default position under section 550 CA 2006 is that the directors have unlimited power to allot new shares (or to grant rights to subscribe for or convert any security into shares). But it is possible to prevent this by inserting a prohibition in the articles (either leaving shareholders to grant section 551 authority from time to time or providing a section 551 authority in the articles).

For New Companies that are not single-class private companies, as under the 1985 Act the directors must be given authority to allot by means of an ordinary resolution, or provisions in the articles, pursuant to section 551 CA 2006 (the equivalent of section 80 CA 85).

Existing Companies

Any existing section 80 authority, whether contained in an ordinary resolution or the articles, remains valid until its expiry (assuming it was not extended indefinitely by elective resolution under section 80A of the 1985 Act).

The power for directors of a private company with a single class of shares to allot shares without limit under section 550 CA 2006 does not apply automatically to Existing Companies - it will only do so if the members resolve by ordinary resolution that it should (i.e. if they choose to opt into the unlimited regime). The effect of such a resolution can only be reversed or modified by inserting a prohibition in the articles by special resolution.

Pre-emption rights

In broad terms, the rules on pre-emption remain unchanged under the 2006 Act. Unless an exemption applies, new shares must be issued in accordance with the statutory pre-emption regime in sections 561-2. As under the 1985 Act, the statutory pre-emption regime can be disapplied (with or without conditions) by any company in relation to the allotment of a specified amount of share capital by means of a special resolution or provisions in the articles or, where the company is private, can be excluded entirely (in relation to all allotments) by means of a provision in the articles. For Existing Companies, any existing exclusion or disapplication remains effective.

Various technical changes are made, however, including:

  • some of the definitions relating to share capital are simplified and amended. Resolutions to authorise directors to allot shares, and to disapply pre-emption rights, need to reflect the new definitions, so the wording of last year's resolutions probably needs to change.
  • where new shares are offered to existing shareholders in accordance with the statutory pre-emption procedure:
  • only non-EEA shareholders can be notified of the offer by means of a notice in the Gazette. EEA shareholders must be notified individually in writing; and
  • the offer must be open for at least 14 days, rather than 21. This shortens the timetable for a "Gazette route" rights issue, for example.

Redemptions of shares and buybacks

Redemptions

From 1 October the default position is reversed for private companies: they have power to issue redeemable shares unless their articles say otherwise. But public companies continue to require specific authorisation in their articles.

Two other changes are significant:

  • If they are authorised to do so by the articles or a special resolution prior to allotment, the directors can determine the terms and manner of redemption before the shares are issued.
    On this basis it is no longer necessary to set out the terms of redemption in the articles.
  • When shares are redeemed, payment must still be in cash but all or part of it can be deferred.

    Buybacks

    A company can now enter into a contract to purchase its own shares off-market that is conditional on shareholder approval being obtained. Under the 1985 Act it was not clear whether such a conditional contract was permissible.

    The 10% limit on holding shares in treasury is removed.

    Statements of capital

    From 1 October, whenever an event occurs that changes a company's issued share capital (e.g. on an issue or buyback of shares) and a return is filed at Companies House it will contain a "statement of capital", showing the number of shares and aggregate amount of capital in issue after the event. A statement of capital must also be filed on formation and as part of the annual return, and must be provided by a company to any member who requests it.

    Redenomination of shares

    In contrast to the position under the 1985 Act, the 2006 Act permits a company to convert shares denominated in one currency into another currency by means of an ordinary resolution.

DIRECTORS' HOME ADDRESSES

Disclosure of directors' home addresses

In general terms, the protection currently afforded to directors who have a confidentiality order is extended automatically to directors of all companies. As a result, it becomes more difficult for members of the public to obtain a director's residential address by inspecting the company's register of directors or by looking at documents filed at Companies House. Once a director moves house after 1 October his residential address will not normally be accessible to the public via company registers or Companies House.

Company registers

From 1 October all companies have to maintain two separate registers of directors:

  • a register of directors, which should contain broadly the same details as at present, but a service address rather than a home address. This register must be open to inspection by members of the company and others; and
  • a new, separate register of directors' residential addresses. The information in this register should only be used by the company to communicate with its directors; the company must not allow anyone to inspect it except pursuant to a Court order.

For Existing Companies, a director's usual residential address in the old register of directors and secretaries is treated as his service address in the new register of directors, and is open to inspection. In order to hide his residential address, a director will need to provide the company with a new service address, such as the company's registered office.

Documents filed at Companies House

Documents filed before 1 October 2009 continue to be available to the public unless a director obtains an order under section 1088 of the 2006 Act for Companies House to remove his residential address from documents that are specifically identified and were filed on or after 1 January 2003. To obtain such an order, the director must provide evidence that he, or someone he lives with, is at serious risk of violence or intimidation.

Documents that are filed from 1 October either require only a service address to be provided (e.g. the annual return on Form AR01) or require a residential address to be provided (e.g. Form IN01 for incorporation, and Form AP01 for the appointment of a director) but on a page that will be removed from the document by Companies House and kept in a "secret" register accessible only by credit reference agencies (CRAs), the police and certain other official bodies. In post-October filings, a director's residential address is therefore no longer placed on the public record (unless it is given as a service address).

Directors who can demonstrate that they, or someone they live with, are at serious risk of violence or intimidation can apply for an order under section 243 of the 2006 Act to prevent their home address being disclosed to a CRA (referred to as "higher protection").

Directors who do not currently have a confidentiality order should consider:

  • Providing a service address (e.g. the company's registered office) to the company secretary. This will hide their residential address from persons inspecting the register of directors;
  • If they are at serious risk of violence or intimidation, applying for an order under section 1088 to remove their residential address from post-2002 documents filed at Companies House and/or an order under section 243 to prevent their home address being disclosed to a CRA.

For directors who on 30 September have a confidentiality order, the order ceases to have effect but, continuing the pre-October position, their residential address in documents that were filed at Companies House after the order was obtained continues to be protected from disclosure. In addition, they are treated as having obtained a section 243 order to prevent disclosure to CRAs. They may want to consider applying for an order under section 1088 to remove their residential address from documents that were filed at Companies House during the period from 1 January 2003 until the date their confidentiality order was obtained.

OTHER CHANGES

Changing a company's name

The 2006 Act allows a company to change its name both by means of a special resolution (as has been the case under the 1985 Act) and also by any other means provided for by its articles. For example, shareholders can delegate to the board the power to change the company's name.

Miscellaneous

Some changes are also made to the rules relating to overseas companies, the registration of charges, and the dissolution and restoration of companies. These are not covered in this note. A separate LawNow article relating to trading disclosures will be published shortly.

ACTION POINTS

Articles of association

Existing Companies should consider amending the articles to:

  • remove the objects brought across from the memorandum;
  • remove the limit on allotting shares (i.e. the old authorised share capital) brought across from the memorandum;
  • remove provisions that duplicate the Act – e.g. the power to purchase the company's own shares and to reduce share capital;
  • remove provisions that are inconsistent with Act – e.g. power for the directors to suspend registration of share transfers;
  • allow the company's name to be changed by the board;
  • bring into line with the 2006 Act provisions dealing with voting by proxies and corporate representatives. (For further information see our LawNow article published on 15 July 2009, "Shareholder Rights Directive - new general meeting requirements for traded companies".)

Allotment of shares

Private companies with only one class of shares should consider whether to give the directors unlimited power to allot shares.

Amend the wording of shareholder resolutions to authorise directors to allot shares, and to disapply pre-emption rights, to bring them into line with new terminology used in the 2006 Act.

Directors

All directors should provide a service address (such as the company's registered office) to the company secretary. Those at serious risk of violence or intimidation should consider applying for an order under section 1088 to remove their residential address from post-2002 documents filed at Companies House and/or an order under section 243 to prevent their home address being disclosed to a CRA.

This article was written for Law-Now, CMS Cameron McKenna's free online information service. To register for Law-Now, please go to www.law-now.com/law-now/mondaq

Law-Now information is for general purposes and guidance only. The information and opinions expressed in all Law-Now articles are not necessarily comprehensive and do not purport to give professional or legal advice. All Law-Now information relates to circumstances prevailing at the date of its original publication and may not have been updated to reflect subsequent developments.

The original publication date for this article was 01/10/2009.

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