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Companies Act 2006: The Impact on your Company’s Memorandum of Association

The remaining provisions of the Companies Act 2006 (‘the Act’) are to be brought into effect on 1st October 2009.  From that date the Memorandum of newly formed companies will be a short statement setting out only the subscribers’ intention to form a company, to become members, and to take at least one share each (in the case of a company limited by shares) (‘the Section 8 Information’), and therefore will be of historical significance only.  Any information in addition to the Section 8 Information (e.g. objects and entrenchment provisions) will be set out in the company’s Articles, which will be its principal constitutional document.

For existing companies (formed prior to 1st October 2009), information other than Section 8 Information currently contained in the Memorandum will automatically be treated as being part of the Articles.

Objects

In the past companies have been limited to those activities that came within their objects set out in the Memorandum.  From 1st October 2009 the default position for all companies will be that their objects are unrestricted, unless the Articles expressly prohibit certain transactions (charities, for example, will be required under charity law to restrict their objects).

Entrenchment

Under the Companies Act 1985 a company was able to include certain rights in the Memorandum that could never be altered, known as ‘absolute entrenchment’ provisions. Under the new Act absolute entrenchment will no longer be possible for companies formed after 1st October 2009.  For existing companies with provisions that are incapable of change, this will continue to be the case, and such provisions will only be removable by way of court order.

The concept of ‘conditional entrenchment’, whereby provisions can only be altered or removed when certain conditions have been met (e.g. with the approval of a greater majority of members than the usual 75% special resolution requirement), will remain available for all companies.  Companies must either incorporate such provisions in the articles on formation, or they will require the unanimous consent of members to include / amend these special rules at a later date.  Any changes to entrenchment provisions must be notified to Companies House within 15 days of the change for the benefit of the Registrar and anyone performing a search of the companies register.
 
In view of these and other changes introduced by the Act we would recommend that all companies review their constitutional documents to ensure that they take advantage of the more relaxed rules and that the provisions are no in conflict with the new laws.

To learn more about how the Companies Act 2006 will affect your business call Farleys Solicitors now on 0125 460 6090 or alternatively you can e-mail us.

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