The final pieces of the jigsaw that is the Companies Act 2006 (the “Act”) are due to come into force on 1 October 2009. Since receiving Royal Assent on 8 November 2006, the provisions of the Act have come into force in stages (see Caught in the Act: September 2008). With the final stage of the implementation imminent, this update highlights the key provisions that will come into force on 1 October 2009.
A key change made by the Act is that from 1 October 2009 both private and public companies can be formed by a single shareholder. A public company must still have at least 2 directors (at least one of whom must be a natural person) under the provisions of the Act.
In terms of the documents required by Companies House to incorporate a company, an application to register a company (Form IN01) will need to be accompanied by a shortened version of the memorandum of association (see below) and articles of association. There will be 3 new types of model articles for different types of company: private companies limited by shares; private companies limited by guarantee; and public companies. The new model articles, which replace Table A, will apply as the default position (to the extent not modified or excluded) to new companies formed from 1 October 2009, but will not automatically apply to existing companies whose articles will remain unchanged. The new model articles have been drafted to be as simple as possible and have been designed with the needs of small, owner-managed businesses in mind. Existing companies may therefore consider amending their articles to reflect the new model articles.
Currently, a company’s constitutional structure is governed by its memorandum of association and articles of association. From 1 October 2009 the Act puts an end to the constitutional significance of the memorandum of association by removing the requirement for a company to state its objects (i.e. what the company can do). This means that a company’s objects will be unrestricted, unless any restrictions are specifically set out in its articles; thus effectively abolishing the ultra vires rule (which provided that a company could only act within the powers set out in its memorandum of association). For an existing company, its objects will become part of its articles of association, which can be amended or deleted in accordance with the requirements of the Act. The memorandum of association will not disappear but it will be reduced to a document that merely states that the subscribers wish to form a company and, in the case of a company that is to have a share capital, agree to take at least one share each. The articles of association will therefore become a company’s main constitutional document and companies may wish to consider including any restrictions on their powers in the articles.
The Act introduces a number of new provisions relating to a company’s name. Of interest is that the Act confers a right on a person to object to the registration of a company’s name if it is similar to a name in which that person has goodwill. Currently, a company can change its name by special resolution. From 1 October 2009 a company will still be able to change its name by special resolution; however the Act provides that it can also do this by other means provided for in the company’s articles of association. This provision effectively allows the company to determine the procedures that it should follow to change its name.
Directors and Secretaries
The Act introduces some key changes relating to the information that directors and secretaries should file at Companies House. One such provision is that a director will need to provide two sets of addresses: a service address (which can be the registered address of the company) and a residential address. The service address will be on the public record but the director’s residential address will be kept confidential with only specified public authorities or credit reference agencies having access to it. This provision is intended to give directors greater protection of their personal information as there has been concern that the provision of such information was open to abuse.
Practically, this means that a company will have to hold two registers: one containing the directors’ service addresses, which must be open to public inspection, and a second that contains the directors’ residential addresses, which must be kept secure and confidential.
Authorised Share Capital
The Act removes the requirement for a company registered after 1 October 2009 to have an authorised share capital. For companies that were incorporated before 1 October 2009, the authorised share capital stated in its memorandum of association will be treated as a provision in the company’s articles of association stipulating the maximum amount of shares that the company may allot. Companies incorporated prior to 1 October 2009 might consider passing an ordinary resolution to remove reference to the authorised share capital or adopting articles that do not contain a statement of authorised share capital. It should be noted that a company will be required to file a statement of capital with Companies House each time there is a change in the amount of the company’s issued share capital.
Allotment of Shares
Currently, when a company is considering issuing further shares it has to check that its directors have sufficient authority to issue the relevant shares. From 1 October 2009 the directors of a private company which only has one class of shares will have unlimited authority to allot that class of shares, unless of course they are prohibited from doing so by the company’s articles.
Acquisition of Own Shares
A company incorporated after 1 October 2009 will no longer need specific authorisation in its articles of association to be able to buyback its own shares. However, a company will be prevented from acquiring its own shares if its articles specifically prevent such an act.
The above summary represents an overview of the provisions of the Act that will come into force on 1 October 2009 and is intended only as a guide. There are also a number of transitional provisions that apply to companies registered under the Companies Act 1985.
For further information please contact James Walton or the Partner with whom you usually deal