September 2009


The new Model Articles bring several advantages

On 1st October a company's memorandum will be deemed to be part of its articles. This means that when a company's articles are next changed the provisions of the memorandum will need to be written into the revised document, provided that the members want to retain them of course. It is worth companies considering doing this now.

When companies do this they should be careful not to compromise the limited liability of the members. There is a danger that the members could be left at risk of being personally liable for the company’s debts. This could happen because limited liability is asserted in the memorandum, and must on no account be left out if the articles are revised.

The new model articles that come into force on 1st October will not automatically apply to existing companies. They have been generally welcomed as being more suitable for modern conditions, particularly the versions for private companies.

Many of the measures are attractive, including allowing e-mail board meetings and general meetings, and giving the directors discretion to refuse to transfer shares. There is now the opportunity to abolish the objects clause and have unrestricted objects. Also, the authorised share capital can be removed. None of these things will happen for existing companies unless the articles are changed.

A company should not adopt part or all of the new model articles without recognising the differences between them and the existing articles. If the members of a company decide to adopt any provisions of the new form of model articles, they should ensure that they do not compromise any particular provisions in the existing articles that were included to achieve a particular purpose.

Should the members decide to replace the existing articles in their entirety with the new model articles, they will have to pass a resolution and then submit the full model articles to Companies House with a copy of the resolution.

When a company embarks upon the challenge of updating its articles the following should be borne in mind.

  1. Articles must not include provisions which are not in accordance with the law.
  2. The articles are legally binding on the company and all of its members.
  3. The directors of a company must comply with the articles and if they don’t they will be in breach of their duties as directors including those duties that have been introduced by the Companies Act 2006.
  4. The entire set of articles must be filed within 15 days after changing their content. If they are not filed then the company will be liable to a penalty of £200.

Great skill is needed when drafting a set of articles. People who are given this responsibility and need guidance should attend Your Company's constitution and articles - are they up to date?

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