Reviewing your company's Articles of Association

Many small companies are not taking advantage of the simplification of company law that came into effect this year as part of the Companies Act 2006.

One of the main aims of the Act was to simplify and deregulate the activities of private companies by “thinking small first”. The Government hoped this would boost investment in small companies and promote their long term performance.

However, to take advantage of a number of the deregulating provisions of the Act a company’s Articles of Association must not contain contrary provisions. So directors should review their company’s Articles, to consider whether they should amend them to take full advantage of such provisions.

These are a few examples of how a company’s Articles may impinge on relevant deregulatory provisions of the Act:

Electronic communication

The Act allows companies to communicate with its shareholders by email or via the company’s website provided the company’s articles expressly permit this method of communication and, in the case of communication by email, with shareholder’s consent. Electronic communication can significantly reduce the administrative burden of companies communicating with their shareholders, particularly when there is a large number of shareholders. Articles do not usually contain a provision authorising a company to communicate with its shareholders electronically and therefore they need to be amended to take advantage of the relevant provisions of the Act.

AGMs

Since April 2008, the Act has removed the requirement for private limited companies to hold Annual General Meetings. However, Articles often incorporate a requirement for the holding of AGMs and sometimes specify matters that must be dealt with at these meetings, such as the laying of accounts and the retirement of directors by rotation.

Private companies wanting to benefit from this change in law may need to amend their Articles to remove references to this type of meeting and to address how traditional AGM matters will be dealt with in the future.

Notice periods

The Act provides that the minimum notice period for all company shareholders’ meetings, regardless of whether a special or ordinary resolution is to be proposed, is 14 days. Prior to 1 October 2007 the minimum notice period for shareholders’ meetings at which a special resolution was to be passed was 21 days. If a company’s Articles specify a longer minimum notice period for shareholder meetings the company will not be able to take advantage of this relaxation without amending its Articles.

If directors conclude that amendments need to be made to their company’s Articles to ensure consistency with certain new de-regulatory provisions of company law, then shareholders, holding at least 75% of the company’s share capital, will need to approve the changes by written resolution or at a general meeting of the shareholders. 

Contact Helen Wallwork for more information or advice.

Published 21/08/2008. The author of this article is Helen Wallwork