Final implementation of the Companies Act 2006
Written by Julie Branch
1 October 2009 marks the end of the Companies Act 1985 (CA 1985) which will be almost entirely repealed on that date and the final implementation of the remaining provisions of the Companies Act 2006 (CA 2006). Most of the provisions of CA 2006 coming into force on 1 October restate and consolidate the existing law but there are some important changes of substance which are as follows:
1 Changes to Constitutional Documents
New companies formed on or after 1 October 2009 will have new forms of memorandums and articles of association.
1.1 Memorandum of association
The memorandum of companies incorporated from 1 October 2009 must be in the prescribed form and simply state that the subscribers wish to form a company under CA 2006 and that they agree to become members of the company and take at least one share each. The memorandum will be more of a historical document as at the moment of registration. All operative provisions will now be contained in the articles.
For companies incorporated prior to 1 October 2009, provisions which were in the memorandum will be deemed to form part of the articles. If a company does not want to keep these provisions, it will need to adopt new articles omitting them – see Sections 2 & 3 of this note for the specific application of this new rule in relation to the objects clause and the statement of authorised share capital.
1.2 Articles of association
New Model Articles will replace Table A as the default articles for companies formed under CA 2006. If no articles are registered or articles are registered but do not exclude or modify the Model Articles, the relevant Model Articles will be deemed to form part of a company’s articles.
There are 3 different sets of Model Articles (i) for private companies limited by shares, (ii) for private companies limited by guarantee and (iii) public companies.
A new company’s articles may contain a “provision for entrenchment”, such that specified provisions may be amended / repealed only if conditions are met or procedures complied with which are more restrictive than those applicable in the case of a special resolution. Such a provision can only be included in the articles on formation of the company or by agreement of all the members and must be notified to Companies House. Provision for entrenchment does not prevent the relevant provision being amended with the agreement of all the members or by order of the court.
The Model Articles will not apply to companies incorporated before 1 October 2009. There is no absolute need for an existing company to amend its articles as a result of the final implementation of the 2006 Act: subject to limited exceptions, CA 2006 will override inconsistent provisions and where the articles refer to CA 1985 section numbers, they will be deemed to refer to the relevant section of CA 2006. However such companies may still want to consult their legal advisers to determine whether the articles should be amended to:
• Remove redundant and out of date references to CA 1985
• Remove unnecessary restrictions which have been abolished by CA 2006
• Benefit from new provisions in CA 2006
Failure to file new articles of association at Companies House within 15 days of adoption will lead to the company being liable to a civil penalty of £200 and may constitute a criminal offence.
2 Changes to the Objects
The CA 2006 provides that a company's objects will be unrestricted unless the articles of association specifically restrict them (for both new and existing companies). Existing companies will not have to change their objects as the existing objects clauses in the memorandum will be deemed to be provisions of the articles. Any existing company that wishes to amend its objects to make them unrestricted going forward, will be able to do so after 1 October 2009 by amending its articles and removing or amending the restrictions on its objects.
Where a company changes its articles to add, remove or alter a statement of the company's objects, CA 2006 requires that the company notify the Registrar and the alteration will not take effect until that notice has been registered at Companies House.
3 Abolition of Authorised Share Capital
From 1 October 2009, a company is no longer required to have an authorised share capital. It will therefore no longer be necessary to increase the authorised capital of a company to allow issues of new shares to take place.
Provisions in the memorandum of association of existing companies stating the amount of authorised share capital will be deemed to be part of the articles of association on 1 October 2009 and will still restrict the maximum amount of shares which can be issued. Existing companies can either (i) pass a resolution to remove the authorised share capital or (ii) adopt new articles which omit a statement of the authorised share capital and any references to authorised share capital or (iii) amend their articles to authorise the directors to allot shares in excess of the maximum authorised share capital.
4 Changes to Allotment of Shares / Pre-Emption Rights
The CA 2006 generally restates the existing pre-emption provisions and the existing law that, subject to certain exemptions, directors must be authorised either by the articles of association or by ordinary resolution to allot shares.
However there are some changes for a private company with only one class of shares:
• The directors may now allot shares of that class unless they are prohibited from doing so by the company’s articles of association
• They may allot shares of that class as if pre-emption rights did not apply if authorised to do so in the articles of association (or by special resolution)
Existing private companies with only one class of shares will only be able to benefit from this first relaxation in the law if the shareholders pass an ordinary resolution giving the directors the power to allot in accordance with CA 2006. This relaxation does not apply to public companies.
5 Protection of Directors’ Residential Addresses
Provisions designed to protect the privacy of directors come into force on 1 October 2009. Currently, a director must notify the company of his home address when he is appointed to the board. His home address is then notified to Companies House and becomes publicly available unless the director seeks a confidentiality order (which can only be obtained where there is a serious risk of violence or intimidation).
From 1 October 2009:
• A director will disclose to the company and Companies House both his residential address and a service address.
• Only the service address will be made publicly available by the company and by Companies House. The service address may be the same as the residential address if the director has no objection to his home address appearing on the public register. However it must be an address from which the director can receive correspondence from Companies House / third parties (e.g. the company’s registered address).
• Both companies and Companies House will keep a separate register of director’s residential addresses which will not be publicly available.
• A company will only be able to disclose residential addresses (i) to communicate with the director or (ii) to provide required information to Companies House or (iii) to comply with a court order.
• Companies House will only be able to disclose residential addresses (i) to credit reference agencies and (ii) to specific public authorities (e.g. FSA, SFO …).
• NB: company secretaries only need to provide a service address to both the company and Companies House.
All directors’ addresses at Companies House as at 1 October 2009 will be deemed to be their service address. Unless a director previously benefited from a confidentiality order, this will be their residential address. Directors should therefore decide whether they should notify the company and Companies House of a different service address. Note however that all old filings at Companies House which contain the director’s home address (e.g. forms 288(a)) will remain available to the public (unless a confidentiality order is obtained).
Companies will have to create a separate register of directors’ residential addresses and will have to make their officers and others aware of the company’s obligation to keep the residential addresses confidential so that they are not inadvertently disclosed to third party (e.g. by disclosing directors’ service agreements to third parties without redacting the director’s address).
6 Creation of a Single Alternative Inspection Location
From 1 October 2009, a company will be able to keep any or all company records and registers available for inspection in one of two places: the company’s registered office or a single alternative inspection location.
The alternative location must be the same place for all registers and records listed in section 1136(2) of CA 2006 (which include registers of members, directors, charges, directors’ service agreement, records of shareholder resolutions) and must be a single location situated in the same part of the UK (for example, England and Wales, Wales, Scotland or Northern Ireland) as the company's registered office. This is sufficiently flexible for a company to select an alternative location appropriate to its business (e.g. its lawyers’ or accountants’ offices).
If a company chooses to have an alternative location, it must notify Companies House of the details of the location and what records are kept there and it must also disclose it in its annual return and to any person it deals with in the course of business who makes a written request for such information.
If a company currently keeps its records at an address other than its registered office, it will need to notify Companies House after 1 October 2009.
7 Changes for Overseas Companies
From 1 October 2009, the Overseas Companies Regulations 2009 (Regulations) will come into force implementing a single system for overseas companies to register an “establishment” in the UK.
An establishment is defined as a branch or any place of business which isn’t a branch (a UK place of business broadly being anywhere in the UK that an overseas company regularly conducts business or premises that indicate that an overseas company may be contacted there).
This new regime will replace the current dual system of place of business / branch so that the same filing requirements will apply regardless of whether the establishment would have been a branch or place of business pre 1 October 2009.
An establishment must be registered at Companies House within one month of it being opened in the UK. The Regulations set out which particulars and documents must be registered and when a company should make a return of alteration of its registered particulars.
Conclusion
The changes above relate principally to a company’s constitution and its share capital. This leads to a more practical change in that from 1 October 2009 all Companies House Forms will change due to the new section numbers in CA 2006. Companies House is sending a letter and brief guide to every registered office address during August and September advising companies of the main changes.
Julie Branch
Solicitor
October 2009