All private limited companies are advised to review their articles of association as the Companies Act 2006 continues to be implemented through a series of Commencement Orders.
The most recent, which came into force in October last year, implemented a number of the more substantive changes to the previous regime. These are summarised below.
Annual general meetings are now optional.
All shareholders meetings can now be called on a 14, rather than 21, "clear" day notice period.
A company’s articles of association may now provide for another person to be nominated to exercise some or all of the rights of a registered shareholder.
Shareholders of a company may ratify a director’s negligent conduct in relation to the company by ordinary resolution.
The default approval level for short notice of general meetings of a company is now 90% of shareholders entitled to attend and vote.
The statutory 48 hour cut-off point for returning forms of proxy for general meetings applies to working days.
Elective and extraordinary resolutions have been replaced by ordinary and special resolutions.
Other changes introduced by the 2006 Act in October 2007
- Written resolutions, which take effect as special resolutions, only have to be signed by 75% of all shareholders entitled to attend and vote at a general meeting; ordinary resolutions by a simple majority of all shareholders entitled to attend and vote at a general meeting.
Directors’ duties have been codified for the first time.
Private companies (except those under the small companies’ accounting regime) must produce a "business review" for any financial year beginning on or after 1st October 2007.
"Substantial property transactions" are now defined as a non-cash asset which exceeds either 10% of the company’s asset value and is more than £5,000, or which exceeds £100,000.
Shareholder approval is required for service contracts guaranteeing a director’s term of employment which is longer than two years.
Minutes of general meetings, resolutions passed other than at general meetings and decisions of a sole shareholder need only be kept for 10 years.
A statutory basis for derivative claims by the shareholders against a company has been introduced.
Shareholders have the right to appoint multiple proxies.
Particular types of resolution, specified in the Act, override any conflicting provision of the company’s articles of association.
Shareholders can now approve loans to directors by the company of more that £10,000.
The common law principle of unanimous consent can now only be relied on where the approval process is simply for the benefit and protection of the shareholders and not other persons or groups.
Shareholders cannot requisition resolutions at general meetings which would be ineffective, defamatory, frivolous or vexatious.
Companies formed after 1st October 2007, which incorporate the Companies Act 2006 Articles of Association Table A, will no longer have a provision in their constitution that the chairman has a casting vote.
Changes introduced by the 2006 Act in April 2008:
In addition to the changes referred to above, a further tranche of amendments under the 2006 Act will be introduced on 6th April 2008.
For further information and advice please contact Mark Lewis in our corporate department.
For the full version of this article please click here.
This article was first published in the spring 2008 edition of NewsBrief.
