A Single Constitutional Document - the Articles
From 1 October 2009, a memorandum of association will no longer be part of a company's constitution. It will only contain details of the subscribers to the company (those who form or formed it) and the number of shares taken or held by those subscribers.
All other provisions in the memorandum of an existing company will be deemed to have been moved into and form part of the company’s articles. The company can remove or amend these provisions by special resolution.
When asked to supply a copy of the company's constitution in the future, it will therefore be necessary to attach, to the current articles, a copy of any provisions which are deemed written into those articles as well as any resolutions and agreements affecting the company's constitution.
Unrestricted Objects And Capacity
Those forming companies after 1 October 2009 will no longer be required to state the ‘objects’ for which the company is formed (what it can do). The default position for such companies will be that a company’s objects are unrestricted unless they are specifically restricted by provisions in the company’s articles.
The objects of an existing company are currently set out in its memorandum and effectively limit its capacity. Where the memorandum of an existing company restricts the company’s objects, this restriction will, by virtue of the operation of the Act after 1 October 2009, continue to bind the company as a provision of its articles.
Existing companies wishing to benefit from unrestricted objects and capacity may therefore choose to remove their objects from their articles with effect from or after 1 October 2009. If they do so, notice must be provided to Companies House together with the special resolution authorising the change. Bear in mind that changing a company's constitution may have other regulatory implications and may require third party approval under commitments made in funding and investment arrangements.
It is useful to note that if a company removes its objects clause and all other provisions of the memorandum not required post - 1 October 2009, it should ensure that the statement referring to the limited liability of the members is expressly contained in the new articles.
New Model Articles
From 1 October 2009 different sets of new Model Articles will apply by default to newly incorporated companies limited by shares (with separate sets for public and private companies) and companies limited by guarantee.
These will not apply automatically to companies existing at 1 October 2009. To adopt the new Model Articles, in full or in part, such companies would have to amend their current articles by passing a special resolution.
Entrenchment Of Provisions In The Articles
From 1 October 2009, any provision in a company’s articles which can only be amended or removed by a procedure more restrictive than a special resolution, will be deemed to be a ‘provision for entrenchment’. Post - 1 October 2009, companies will only be able to remove or alter such provisions with the agreement of all shareholders.
A restriction in the articles stating that they may not be amended without the prior consent of a specified shareholder or class of shareholders is likely to constitute a provision for entrenchment.
Entrenchment is not a new concept; existing companies have historically been able to entrench provisions by placing them in the memorandum and restricting their amendment or removal. Currently, such provisions can be altered by special resolution, or other stricter procedure as specified in the articles or memorandum. After 1 October 2009 such provisions will be deemed to form part of the articles under CA 2006 and unanimous shareholder consent will therefore be required in order to effect an alteration or removal.
Previously, entrenched provisions contained in a memorandum could be entrenched 'absolutely' or 'conditionally'. Under CA 2006, only conditional entrenchment will be permitted. However, those provisions which are entrenched absolutely before 1 October 2009 will remain unalterable after this date (except by court order).
Any company creating an entrenched provision after 1 October 2009 is required to provide notice to Companies House. For companies incorporated before this date, Companies House will also require notice if any entrenched provisions are removed from their articles.