Time to review your articles?

ANDREW FLEMING from Blocks Solicitors explains why it might be a good time for companies to review their articles of association

ANDREW FLEMING from Blocks Solicitors explains why it might be a good time for companies to review their articles of association

ON OCTOBER 1 last year the final sections of the Companies Act 2006 were implemented.

This means that private companies incorporated before that time may now wish to adapt or replace their articles of association, which govern and regulate the way the company is run.

There is no obligation for changes to be made but advantage can be taken of a number of useful simplifications introduced by the Act and one is more likely to avoid falling foul of new rules made by the Act.

It is usually easier to adopt completely new articles rather than to fiddle about with a current version .

Some of the potential benefits are:

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n Objects: existing companies had to have “objects clauses” which stated what activities the company was permitted to undertake, which could be restrictive and opened the way to the risk of unlawful activities. Appropriate new articles can remove any restriction on the activities of the company. One practical benefit of this is that banks will not have to check the constitution of a company to ensure that it has the requisite powers to borrow or grant security.

n Authorised share capital: Existing companies had a defined share capital, divisible into units of currency. Once this total figure had been issued, no further shares might be issued without resolution of the members. One can now remove reference to authorised share capital altogether, so there is no limit on the number of shares the company may issue.

n Allotment of shares: Shares of the same class may now be allotted without shareholder approval, which can be useful especially for wholly-owned subsidiaries.

n Change of name: This may be simplified by the articles, allowing change to take place by board resolution rather than by special resolution of the shareholders.

n Share capital: New articles may permit a private company to issue redeemable shares, purchase its own shares or reduce its capital without restriction.

n Secretary: The requirement for a secretary in a private company was abolished a couple of years ago, provided that the articles permitted this. Sometimes, it is useful to still have a secretary but if you decide not to have one, ensure that the articles allow this.

A 2008 regulation contains new model articles of association, which can be easily used and adapted to replace a company's current articles. These articles are fully compliant with the 2006 Act and are much more modern in outlook and language than old standard articles under previous legislation.

Although these model articles are a very useful template, it is of course open to directors to make additional amendments depending on the specific requirements of their company.