Companies Act 2006- The final push

On 1 October 2009, the final set of provisions of the Companies Act 2006 (the "Act") came into force. On that date, the Act became  fully implemented and the majority of provisions of the Companies Act 1985 were repealed.

What has changed from 1 October 2009?

The key changes to the law which took effect on 1 October 2009 and which are summarised in more detail below are:

• directors of private companies will have wider powers to allot shares;
• a reduction in shareholder information required in annual returns of non-listed companies;
• the abolition of authorised share capital;
• changes to the form of a company's memorandum and articles of association;
• changes to the information concerning directors which are required to be on the public record (these are covered in a separate McGrigors' e-Bulletin published on 29 July 2009 and are not therefore addressed below);
• the introduction of restrictions on the ability of public companies to allot shares where a share offer is not fully subscribed;
• relaxation of the requirements for a company wishing to purchase its own shares, issue redeemable shares or reduce its share capital;
• a wholesale change to the forms required to be submitted to the Registrar of Companies.

Directors' power to allot shares

Directors of private companies with a single class of shares are now able to allot shares without shareholder authority unless expressly prohibited by the articles of association.  However, this power will only apply to existing companies if approved by an ordinary resolution of the members (i.e. members holding 50% of the shares may block the change).

The power to allot shares does remain subject to statutory pre-emption rights (unless otherwise disapplied) and to any other pre-emption rights which may be relevant.

Annual Returns

Shareholder addresses are no longer required to be included in annual returns unless the company is traded.  For this purpose, traded means listed on a regulated market in the EU (which includes the  London Stock Exchange but not AIM).  Traded companies will only be required to give addresses for shareholders holding more than 5% of the issued shares in any class.

Abolition of Authorised Share Capital

The concept of an authorised share capital, i.e. a number of shares which have been created but not issued, has been abolished.  The authorised share capital of existing companies will continue to take effect as a limit on the number of shares which may be allotted, but that may be amended or revoked by ordinary resolution or through a change to the company's articles of association.

Company Constitutional Documents

From 1 October the memorandum of association of a company has a much reduced role as the company's objects automatically become part of its articles (although there is no need to register this change with the Registrar of Companies).  The memorandum is now simply be a document expressing the intention of the founder shareholders to form the company and take shares in it.

In addition, there is now no requirement for the articles (or the memorandum) to contain any objects whatsoever and if they do not the company's objects will effectively be unrestricted.  A new company may simply omit objects from its articles on incorporation and any company may amend or remove objects by amending its articles through a special resolution.

Should a new company wish to have objects, so as to limit the business which it is competent to conduct, it remains free to do so.

The principle of Table A articles being referred to, and applying unless expressly excluded, is abolished and replaced with the concept of model articles.  There are three forms of model articles, one for private companies limited by shares, one for private companies limited by guarantee and one for public limited companies.  The model articles are a template which may be used if desired, they are not prescriptive and in future we expect it to become the norm for all applicable provisions to be written out in full, meaning that a company's articles are likely to be available in full in a single document.

Allotment of Shares by Public Companies

Public companies are no longer be permitted to allot shares following a share offer unless the share offer is subscribed in full or expressly states that shares will be issued even if the offer is not subscribed in full.

This will need to be taken into account whenever public offers are being considered and when entering into underwriting arrangements.

Purchase of Own Shares, Issue of Redeemable Shares and Reduction of Share Capital

It will no longer be necessary for a company's articles to expressly permit the purchase by the company of its own shares out of distributable profits.

A private company (but not a public company) is now also able to issue redeemable shares, and redeem them, and purchase its own shares out of capital without specific authorisation in its articles.

However, if a company's articles expressly forbid it to purchase its own shares it is not permitted to do so without deleting or suspending that provision.

Additionally, a company no longer needs to have authority in its articles to reduce its share capital.  This relaxation is in addition to the simplified reduction of capital procedure introduced in October 2008, which permits a company to reduce its share capital without going to court provided that the directors make a solvency statement.

Companies Forms

On 1 October there was a wholesale change to the forms required to be filed with the Registrar of Companies. Of particular note are:

• that forms 288a and 288b (returns on appointment and resignation of directors and company secretaries) will be replaced with differing forms for directors and for secretaries and further variations for corporate directors and secretaries: forms AP01 to AP04, TP01 and TM02 will now be relevant;
• the annual return form 363 is replaced with form AR01; and
• the return on allotments form 88(2) is replaced with form SH01.

McGrigors have prepared a table listing all the new forms, and which old forms they replace, and this is available on request.

How can McGrigors help?

The McGrigors team can assist you with the above as well as providing pragmatic and tailored advice to allow you to take advantage of the opportunities offered by the new provisions and minimise any risks associated with them.

If you would like to discuss this briefing note further, please get in touch with your existing contact at McGrigors or any any member of the McGrigors' Corporate team.

David MacDonald
Senior Associate, Corporate
Tel +44 (0)131 777 7059
Email david.macdonald@mcgrigors.com