As the Companies Act 2006 (the Act) has significantly amended UK company law, the government has taken the opportunity to develop a new set of default articles to bring them into line with the provisions of the Act. The Companies (Model Articles) Regulations 2008 (SI 2008/3229) (the 2008 Regulations) contain new model articles that will apply by default to any new company incorporated on or after 1 October 2009, unless otherwise modified or excluded.
The new model articles are straightforward, simple and short. When producing the model articles, the Department for Business, Innovation and Skills (BIS) (formerly BERR) took a ‘think small first’ approach. This approach has resulted in a set of model articles that are intended to be better suited to small, owner-managed companies. They adopt a plain English style that is easier to read and understand. The model articles are shorter in length, in part, because many of the old Table A provisions are not repeated given that they are now contained in the Act. This will not be an issue for companies that have an in-house lawyer or regularly use lawyers to handle company administration, but for the small owner-managed companies that the Act is intended to be aimed at, it is arguably going to be more difficult to use the model articles.
Model articles
The 2008 Regulations contain model articles for three different types of company:
- private company limited by shares;
- private company limited by guarantee; and
- public company.
This article concentrates on the private company model articles.
Companies incorporated after 1 October 2009 will not be obliged to adopt the model articles and can still adopt their own tailor-made articles.
Existing companies will continue with their current constitutional documents that, generally, will incorporate some, if not all, of Table A. In a group situation, consideration should be given to the best approach going forward. Should new companies be incorporated with articles based on the new model articles, or follow the form of articles of other existing companies within the group based on Table A? For consistency, should existing companies have their articles amended to bring them into line with the new model articles?
How do the model articles differ from Table A?
As the Act has made substantial changes to UK company law, the new private company model articles differ from Table A in content, as well as style. Key differences from Table A include:
- as the contents of the memorandum of association will be very limited after 1 October 2009, the model articles contain matters that historically would have been contained in the memorandum, for example the statement of liability of the members;
- many provisions that were previously contained in Table A are not included in the model articles as they are contained in the Act and are not reproduced in the model articles;
- there are no provisions relating to partly paid shares (for example calls on shares) as BIS has assumed that all shares will be fully paid up in the majority of private companies;
- there are no provisions relating to company secretaries, reflecting the fact that private companies are no longer required to have a company secretary;
- under the model articles, directors are able to participate in meetings even if they are not in the same location, by means of telephone or video conference; and
- there are no provisions for alternate directors and, in view of the ease of communications, it is expected that most private companies will not have any need to appoint alternate directors.
As BIS’s approach when creating the new private company model articles was to create model articles for small, uncomplicated companies, it is likely that they will be most readily suitable for small, family run companies and group subsidiary companies. It is expected that public company articles will continue to be bespoke and rely less on the model articles. The private company model articles may not be appropriate for larger private companies, and certainly not, as is the case with Table A, for private equity backed or complex joint venture companies. Recognising this one-fit approach does not suit all, BIS has conceded that some private companies may wish to use parts of the public company model articles as a ‘bolt on’ where the private company model articles are insufficient for the particular company. Additional provisions from the public company model articles that could be included to make the private company model articles more suitable include provisions for:
- alternate directors;
- partly paid shares, such as liens, calls, forfeiture and dividends on partly paid shares;
- retirement of directors by rotation; and
- class meetings.
Additionally, a company should consider whether it needs to include bespoke provisions, such as quorum provisions. For example, to require a particular shareholder or representative in the quorum. Should it include provisions that specify how directors’ conflicts of interests will be managed? For example, whether conflicted directors will be excluded or included in relevant board meetings.
Provisions found in the Act
As mentioned already, certain provisions have been omitted from the model articles since they are now contained in the Act. The advantage of this is that the new model articles are much shorter and avoid duplicating such matters. The disadvantage is that anyone using the new model articles will not find everything in that one place. As an example, consider where a small, private company needs to pass a shareholder resolution. The table below sets out a brief summary of the steps a director or company secretary of a private company would need to take, and the sources they would need to refer to.
From the example below it is clear that, to undertake most procedures in respect of the company, the officers of the company will need to consult both the new model articles and the Act. To some degree this is true in respect of Table A. For example, to use the statutory written resolution procedure under the Companies Act 1985 (the 1985 Act) or to pass a resolution requiring special notice would require reference to the 1985 Act.
It is anticipated, however, that with the new model articles, small private companies will have to refer to the Act more frequently than previously, or refer to in-house or external lawyers for guidance. BIS plans to publish guidance that explains the differences between the approaches to Table A and the new model articles, but apparently nothing to act as a pointer for small companies as to which sections of the Act they should refer to. For example, for provisions governing notice of general meetings. An alternative is for companies to expand the model articles they adopt by reproducing the more commonly anticipated provisions of the Act word for word. Therefore, although the shorter, more straightforward new model articles may be welcomed by lawyers, the intended beneficiaries – people running small companies – may not welcome an increased need to refer to statute (or lawyers) for company administration.
By Sarah Bryan, senior associate, and Jennifer Malcolm, solicitor, McGrigors LLP.E-mail This e-mail address is being protected from spambots. You need JavaScript enabled to view it
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