ARTICLE
27 March 2008

Articles Of Association

D
DWF
Contributor
Unfortunately, rather than taking the simple approach of bringing the whole of the new Companies Act 2006 into force at once, the Government has instead done things piecemeal leaving companies struggling to work out how the new legislation impacts on their day to day operations.
UK Corporate/Commercial Law
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Unfortunately, rather than taking the simple approach of bringing the whole of the new Companies Act 2006 into force at once, the Government has instead done things piecemeal leaving companies struggling to work out how the new legislation impacts on their day to day operations.

Every Company has a set of Articles of Association which set out its constitution and how it should run its affairs.  Whilst there is still more legislation to come into force, companies should now be taking steps to review their Articles to allow them to take advantage of the increased flexibility the new Act provides.  The top 5 "tidy ups" for their Articles that all companies should be considering are as follows:-

1. Shareholder Resolutions
There are now only two types of Resolutions that can be passed at meetings, Ordinary Resolutions – 50% and Special Resolutions – 75%, so all references to Extra Ordinary Resolutions should be deleted.  A new procedure for passing Written Resolutions has also been implemented, these no longer need to be signed by all shareholders and can be passed by 50% or 75% of shareholders, depending on the subject matter.  Any Written Resolution procedure in the Articles should therefore be deleted.

2. Meetings
Private companies no longer require to have Annual General Meetings and all references to such meetings should be deleted from the Articles.  All shareholder meetings will now be known as General Meetings and the notice period can be reduced to 14 days rather than 21, provided that the Articles of Association have been updated to reflect this.  This allows companies to convene meetings more quickly and means that they are no longer required to hold meetings which are unnecessary.  From April private companies will no longer be required to have a secretary so all references to the secretary should also be removed.

3. Voting
New companies will no longer be able to have provisions granting a Chairman's casting vote at meetings but those whose Articles currently have such a provision will be able to continue to rely on it.  Companies should consider whether a Chairman's casting vote is required in all situations.

Proxies are now entitled to vote on a show of hands and speak at meetings and the Articles should be reviewed to ensure that they comply with the new law.

4. Electronic Communications
The new Act contains provisions permitting companies and their shareholders to communicate electronically.  This gives companies flexibility allowing them to reduce costs and their impact on the environment.  Shareholders can still require that they get the company's communication in paper form if they prefer so no shareholders will be disadvantaged and many now prefer to use email and websites.  The Articles should be amended to take advantage of this new regime and shareholders contacted to obtain the necessary details.

5. Directors' Indemnities
Directors now have seven specific duties as set out in the Act four of which are already in force:

  • the duty to promote the success of the company;
  • the duty to act within their powers;
  • the duty to act independently; and
  • the duty to exercise reasonable skill and care in carrying out their activities.

The remaining three duties relate to conflicts of interest between the Directors and their company and these come into force on 1 October 2008.  Directors should be aware of their new duties and ensure that their actions do not fall foul of these.  Articles of Association usually contain a standard indemnity to protect Directors in case of litigation against them and the new Act allows an extension to the protections currently available.  Directors would be well advised to ensure that the Articles are updated to provide them with the fullest indemnity possible.

All companies should be briefing directors on their new duties and reviewing their Articles to take advantage of the new flexibility now available.

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.











ARTICLE
27 March 2008

Articles Of Association

UK Corporate/Commercial Law
Contributor
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