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Company secretarial: Articles

03 March 2021

As the AGM season approaches again, company secretaries will be considering what business they need to put to shareholders at the meeting.

As the AGM season approaches again, company secretaries will be considering what business they need to put to shareholders at the meeting. Although you probably do not want to update the articles every year, it is worth reviewing them regularly to make sure they are up-to-date. Most large PLCs will have updated their articles in 2009 and/or 2010 to deal with the final Companies Act (CA) 2006 changes, but not all companies may have done so. As time goes on and the new legislation settles in, it can be problematic if companies have not done the necessary housekeeping changes.
Some of the main things to look out for are as follows:

Clauses from the old memorandum
The old style memorandum has gone and this document is now simply a statement of the company’s subscribers.

A company is no longer required to restrict its objects and therefore you do not need to include an objects clause in the new constitution. Note that charities must have an objects clause and this may also be desirable for other not-for-profit organisations. However, for most commercial entities it is likely to be better to remove the objects clause.

Limited liability
This clause is essential and must be carried over to the new constitution as part of the articles.

Share capital
This has been the cause of some confusion. The concept of authorised capital is no longer included in the CA 2006. However, if a company has not removed this clause from its memorandum it can act as a limit on the number of shares which can be allotted.

It is therefore preferable to remove it altogether. There should also no longer need to be any references to ‘unissued’ shares in the revised constitution.

Model articles
Companies incorporated after 1 October 2009 (new companies), will default to the new model articles if they do not produce their own. Older companies will be left with whichever version of Table A they used before, unless they update their articles to incorporate the new model articles. There are three versions of these, one for private companies limited by shares, one for public companies limited by shares and one for guarantee companies. The UK Government did not introduce model articles for other types of company (e.g. unlimited) as it felt there would not be sufficient need for them and it was also likely that they would need more specialist provisions.

Some of the provisions of the old Table A are inconsistent with the CA 2006, so it is worth updating at some point. One particularly tricky area is that of general meetings. Even with up-to-date articles, it can be a challenge working out whether the articles or the Act takes precedence and this can be even trickier with Table A-based articles. However, it is important to take care that any particular provisions in the articles, which are needed by the company, are carried over to the new version (for example, special rights attaching to particular classes of shares).

The model articles for private companies are deliberately short and simple. Certain provisions are omitted; for example, there is no reference to alternate directors, partly paid shares or annual general meetings. If the company needs these to be included they can be taken from the model articles for PLCs and inserted into a tailored set of articles.
Large listed PLCs are most likely to have tailored articles as they will need extra provisions, particularly to do with share registration and listing rule requirements.

Particular issues
Execution of documents
The new model articles allow for the seal to be authorised by one person whose signature is witnessed (companies may prefer to keep the rule of two directors or one director and the company secretary). It may be necessary for share certificates to be issued without physically affixing a seal, and the articles should allow for a printed seal or just printed signatures without a seal at all. The share registrars will advise on their preferred method and may be able to supply suggested standard wording.

Directors’ conflicts of interest
This is another area where companies need to be up-to-date. For PLCs these can be authorised by other directors if the articles specifically allow it. For private companies, they can be authorised by other directors as long as the articles do not specifically prevent it.

Share allotment
In new private companies with only one share class, there is no limit to the number of shares which directors can allot, unless the articles restrict this (s.550 CA 2006). If the shareholders of such companies do not want the directors to have such unlimited authority they will need to impose a limit on the number of shares which the directors may allot. For old companies (i.e. those
formed under CA 1985 or earlier), it will be necessary for an ordinary resolution to be passed to grant the directors the same unlimited authority.

Section 567 of CA 2006 allows private companies to have wording in their articles to exclude the general rule on pre-emption altogether. Section 569 effectively also allows private companies with only one class of share to pass a special resolution to exclude the rule.

Shareholder rights directive (SRD)
There were changes to Part 13 of CA 2006 following the SRD; for example, the way that proxies may vote on a show of hands and the appointment of multiple corporate representatives. The articles should be amended if necessary to reflect these changes. (See ICSA Guidance on the Implementation of the Shareholder Rights Directive, from www.icsa.org.uk for more details).

The new model articles and all of the versions of Table A can be downloaded from the Companies House website.

This section written by Lorraine Young, a Chartered Secretary in Public Practice. She can be contacted via www.lorraineyoung.co.uk.

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