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Articles of Association

Introduction

Under the Companies Act 2006 (“CA2006”) and associated secondary legislation, all companies formed after 1st October 2009 will, by default, adopt standard Articles of Association unless specific Articles are drawn for that individual company.

Existing companies will be affected by provisions which automatically change or override their memorandum of association and should consider carrying out a general update so as to comply.

For many companies, that means changes to existing articles. This article outlines the critical changes taking place to Articles of Association under the CA2006. It will be useful reading for all shareholders, directors and anyone with an interest in company law because the changes will eventually, affect all private companies.

What is Table A?

All companies are required to adopt memorandum of association and articles of association when they incorporate. Tables A to F of the Companies (Tables A to F) Regulations 1985 (more commonly known as Table A) set out standardised model articles, which companies can use as the basis for their own articles. If companies do not register their own articles of association, Table A applies by default.

Table A was amended in September 2007 to take account of the Companies Act 2006.

Who does the new Table A apply to?

It applies to new companies incorporated on or after 1 October 2007 which do not register articles of their own when they apply to be incorporated. Companies are not obliged to use Table A however and can write their own articles or base them on the Table A articles. If companies do not register their own articles of association, Table A applies by default.

What has changed?

The implications of the new Act for articles of association fall into four broad categories:

New enabling provisions: The 2006 Act allows a company flexibility in certain areas provided that its articles contain an appropriate enabling provision. For example, articles can specify an alternative procedure for changing the company's name (in addition to the ability to change it by special resolution). Another example is the ability for directors to authorise a conflict of interest of one of their number provided, in the case of a public company that its articles specifically permit this;
Redundant provisions: Existing articles are likely to contain certain enabling provisions required by the 1985 Companies Act which are not required by the 2006 Act. Examples include authorities for the company to purchase its own shares or to reduce its share capital;
Unnecessary restrictions and obligations: Articles adopted under the 1985 Act are also likely to contain restrictions and obligations which are not required under the 2006 Act, although a company could choose to retain them. One example is the concept of authorised share capital, which acts as a restriction on the number of shares a company can issue. For private companies, other examples include provisions requiring annual general meetings to be held or requiring the comp to have a secretary;
Administrative provisions: The 2006 Act includes many administrative provisions which were previously left to companies to deal with in their articles, for example in relation to shareholder meetings.In some cases, these provisions will differ from those which many companies will have in their current articles, for example in relation to the right of proxies to vote on a show of hands. In some cases, the provisions of the Act override the articles, in others the Act merely sets out a default provision if the articles are silent.

What should existing companies be doing?

Companies, both public and private, should be reviewing their articles of association with a view to bringing them into line with the 2006 Act.

Public companies will generally wish to deal with any changes at their annual general meeting. Companies should consider proposing a change at their 2008 AGM to permit the board to authorise situations where a director may have a conflict of interest, in anticipation of changes to the rules on conflicts which will come into force in October 2008. Other changes could also be considered at this time to bring articles into line with the provisions of the 2006 Act already in force. Further changes could be adopted at the 2009 AGM to take effect on 1 October 2009, reflecting the final provisions of the Act which come into force on that date, including the removal of restrictive objects clauses.

It may be easier for private companies to pass resolutions to amend their articles, in particular using the statutory written resolution procedure which was relaxed with effect from 1 October 2007. These companies may consider amending their articles more than once, to take advantage of deregulatory provisions of the 2006 Act as they are brought into force.

If a company does not take any action to amend its articles, it will still be affected by transitional provisions which effectively move clauses from its memorandum into its articles on 1 October 2009. These clauses will need to be included in any copy of the articles provided to shareholders, the Registrar of Companies or others after that date. In addition, the company will need to ascertain which provisions in its articles have been overridden by the 2006 Act.

A company's articles of association are important documents. Existing companies have additional provisions in their memorandum including the objects of the company. These provisions will, with effect from 1 October 2009, be treated as if they formed part of the company's articles. Companies may wish to amend their articles after that date to remove the restrictions on their objects going forward.

Additional amendments may be required to:

Update memorandum and articles to accord with current law, especially to take full advantage of the change made by the Companies Act 2006 or by the director indemnity provisions introduced in 2005;
To enable a specific transaction to be carried out under the memorandum and articles (for example, purchase of own shares);
To cater for changes in share capital, o;
Remove provisions of the memorandum and articles that are no longer relevant for example, out of date share transfer provisions.

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