The Companies Act 2006 introduced one of the most fundamental changes in company law for many years by simplifying the previous combination of a memorandum and a set of articles of association based by default on 'Table A' regulations, with what is now just the articles of association based on a model set.
The memorandum of association still exists is now a much reduced document and just contains the statement of intent of subscribers
The articles remain a rule book to regulate the company. The word 'model' should not be interpreted as a set to which to aspire, but rather a set from which you can make changes to suit your company.
The model articles
The Companies (Model Articles) Regulations 2008 prescribe model articles for three most common types of company:
- Private companies limited by shares
- Private companies limited by guarantee
- Public companies
Other types of company are relatively rare and often have very specific needs that do not justify a standardised approach. But if you have to draw articles for any such company you can use the Companies House model set as a guide to your precise requirements.
The new model sets:
- reflect updated provisions of company law
- follow a principle of avoiding archaic and legalistic language wherever possible
- do not duplicate provisions of the Companies Act 2006 governing procedural matters (for example Part 13 of the Act, which sets out procedures for resolutions and meetings)
Key differences between Table A and the Model set
Whether you are already running a company or thinking to incorporate a new one, it is important to know the key changes introduced by new law.
The main points of change affecting a small private company are:
Annual general meetings
A private company is no longer required to hold an annual general meeting There is, therefore, no provision made for AGMs in the model articles on the assumption that most small private companies will take advantage of this change in the law.
However, there are advantages in calling the shareholders together once a year to vote at one time on whatever important issues will affect the company in the near future. So, if you want your company to hold annual general meetings, you may provide for it.
A private company is no longer required to have a company secretary. The choice is yours whether you do or not. Whatever you decide, a provision should be made in the articles.
Shareholders reserve powers
It is now easier for shareholders to control the directors. This is not because there is one article which says so, but because many small changes add up to this situation.
Directors may delegate
This article is introduced to determine the extent to which directors may delegate their powers. It provides wide ranging options as to what can be delegated and in what circumstances. However, nothing permits a director to delegate his overall responsibility to an outsider.
Decision making by members
You will note that model articles do not mention how to call a meeting. That is because the procedure is laid down by law in Sections 302 to 308 of the Companies Act 2006 and cannot be changed except to extend or shorten the notice period (otherwise 14 days - sec 307(3)(4)).
However, that does not affect your freedom to decide what meetings you need or what agenda should be followed.
There is now new regime of written resolution under section 288-300 CA 2006.
A significant change is that the written resolution can be passed in the same way company passes other resolutions: ordinary resolutions by a simple majority, and special resolutions by a 75% majority.
You cannot change the passing percentage, but you may prescribe the procedure for directors.
Chairman’s casting vote
Under the old law, the chairman of a meeting often had a casting vote. Under CA 2006, the articles can specify how a chairman may be appointed, for how long, and whether he has a casting vote.
This is a new freedom introduced by CA 2006. It recognises that life is too short to have meetings around a table at times convenient to all. As a matter of law, the directors or shareholders may now choose to hold meetings when some or all of them are in different places, using electronic communication.
Indemnity and insurance
The model articles include an option whereby the directors may maintain insurance to protect the directors from claims arising in the course of their work as a director.
Default application of the model articles
If you draw your own articles and unintentionally leave some matters silent, then the model ones comes into picture and are automatically applied to plug any gaps in your own.
Depending upon the situation this may be beneficial, or it may be rigid for your company.
As examples of the default application of the model set (sec 20(1) CA 2006), the following might happen.
- Your articles are silent about the casting vote at directors’ meeting - by application of model set, the chairman will have the casting vote.
- You do not mention in your articles who will determine directors' remuneration - the model set allow the directors to set their remuneration themselves. You may not want the directors to have this power.
There is a similar situation if your articles do not fix the quorum at general meting or a directors’ meeting - under the model set, a quorum is just two.
To cater for such problems, you may include an 'excluding provision'. This should be worded so as to exclude the application of model articles in any case and to the fullest extent. But note, although you can exclude the model articles, you cannot deviate from or override the law.
Updating your own articles of association
This article covers only some of the changes made by CA 2006, and suggested in the model articles. We include far more information and scenarios in our articles of association templates. Each document covers different scenario, creates a unique structure, and comes with extensive notes.
We also provide the documents needed to adopt a new set of articles (free with any template set of articles).
If you are concerned to make sure any changes you have made to a Net Lawman template are appropriate, you can also take advantage of our document review service.