Companies Act 2006 - Article 01

Links
Companies Act 2006 Article 2 (Parts 8,9 & 10 of the Companies Act 2006)
Companies Act 2006 Article 3 (Part12 and 13 of the Companies Act 2006)
Text of the Act on IPSO website
Provisions already implemented at April 2007
Provisions implemented in October 2007
Proposed timetable for implementation
A list of all parts and chapters
Company Law Club new legislation section (for commencement orders, etc)
DTI website

Introduction
This is the first of a series of articles about the new Act, giving an account of its first seven Parts. It does not claim to be a comprehensive account of all the legislative provisions, but highlights those areas where the law has changed. It also emphasises the areas that are of practical concern to those who run owner-managed companies, and their advisors. As with the rest of the Company Law Club website, some areas, judged to be primarily of academic interest or concerning only public, and especially listed, companies do not receive detailed treatment.

In this article, the terms 'old' and 'new' are used to denote the law under the 1985 Act (and related statutory instruments, etc. and the 2006 Act, etc. respectively.

Areas covered in this article:
Part 1. General introductory provisions
Types of company
Part 2. Company formation
Company formation
Part 3. A company's constitution
A company's constitution
Articles of association
Alteration of articles
Resolutions and agreements affecting a company's constitution
Statement of company's objects
Part 4. A company's capacity and related matters
Capacity of company and power of directors to bind it
Execution of documents
Part 5. A company's name
Company names
Prohibited names
Sensitive words and expressions
Permitted characters etc
Indications of company type or legal form
Similarity to other name on registrar's index
Similarity to other name in which person has goodwill
Change of name
Trading disclosures
Part 6. A company's registered office
Registered office
Part 7. Re-registration as a means of altering a company's status
Re-registrations
Private company becoming public
Public company becoming private
Private limited company becoming unlimited
Unlimited private company becoming limited
Public company becoming private and unlimited

Types of company (sec3 - sec6)
These are essentially unchanged from previous legislation, but the Community Interest Company (CIC), introduced by the Companies (Audit, Investigations and Community Enterprise) Act 2004, is included.

Company formation (sec7 - sec16). Proposed implementation date: October 2008.
The documents and forms to be used for a company formation are changed very considerably. To register a company under the new law the following must be registered at Companies House:

A memorandum of association (sec7 - sec8)
The new memorandum is a form, not a document, and contains only the subscription page of the old memorandum, i.e. the names and addresses of the subscribers and (in the case of a company with a share capital) the number of shares to be taken by each. (At the time of writing the actual details of the form are still subject to consultation.)

An application for registration (sec9), another form, containing:
· company's name (previously in the old memorandum, but also the old form 10)
· situation of registered office (i.e. country of registration, as stated in the old memorandum)
· whether liability of members is limited and, if so, whether by shares or guarantee (previously in the old memorandum).
· whether a private or a public company (previously in the old memorandum if it was to be a public company).
· name and address of agent for the subscribers (if any) (as on the old form 10).

Statement of capital (sec10)
(Not guarantee companies) Authorised capital is abolished, but a statement of initial issued capital and shareholdings, i.e. details of the shares to be issued to the subscribers on formation, must be supplied. The details to be included on this form are:

· the total number of issued shares,
· their aggregate nominal value,
· details of each class of shares issued,
· prescribed details of the rights attached to the class,
· the number of shares (and class) taken by each subscriber, and
· the paid and unpaid amounts of such shares.

Under the old system, some of this information was shown in the memorandum (shares taken by the subscribers), and the rights attached to each class of shares may have been stated in the old articles, but not necessarily. Some of the information is the same as appeared on the old return of allotments (form 88(2)), though this would not have been required for an allotment of subscribers' shares. Note also that some of the details required, including the information required to identify each subscriber, are to be specified in regulations. (The details are still subject to consultation.)

Companies limited by guarantee send a statement of guarantee instead of a statement of capital.

Statement of proposed officers (sec12)
Details of the directors and secretary (if any), as on the old form 10. Under the new law, a private company is not required to have a secretary (from April 2008), but may do so (sec270). The directors' details include a service address, which may just be stated as 'the company's registered office'. There is no need to state a director's residential address. The company must keep a register of these (sec165), but this is not a record to which the public has access. As under the old law, corporate directors are permitted, but a company must have at least one director who is a natural person (sec155), and the new minimum age for being a director is 16 (sec157).
The requirement that every company must have a natural person as a director will be a considerable inconvenience for commercial solicitors and company registration agents. The current practice where a formation is required rapidly is to register the company using the solicitors' or agents' nominee companies as subscriber, director and secretary. This practice will have to change and may effect the coup de grace for the old ready-made company.

Statement of compliance (sec13)
As with the old form 12, this is a statement that the requirements of the Act as to registration have been complied with, but it is not a statutory declaration.

Registration (sec14 - sec16)
The registrar issues a certificate of incorporation (sec14), which has the same effect as the old certificate (sec16). The company 'is capable of exercising all the functions of an incorporated company, and the subscribers become the holders of the shares specified in the statement of capital. The directors and any secretary are appointed as officers on the date of incorporation.

A company's constitution (sec17 - sec38)

Definition (sec17)
Unless the context otherwise requires, the constitution includes the company's articles and any resolutions or agreements specified in sec29 (see below).

Articles of association (sec18 - sec28)
A company must register articles unless the (new) model articles (i.e. replacement for Table A) apply. The articles must be in a single document and must be divided into numbered paragraphs. Model articles for the different types of companies are still to be specified in regulations (sec19), and the drafts are still subject to consultation. As with the old Table A, the model articles apply except to the extent that they are excluded or replaced by actual articles (sec20). Articles can be altered by special resolution (sec21).

Alteration of articles
As under the old law, a company may alter its articles by special resolution; sec21.

Entrenched provisions in the articles (sec22 - sec24)
The articles may contain provisions that may be amended or repealed only if conditions are met, or procedures are complied with, that are more restrictive than passing a special resolution (e.g. that, say, these particular provisions require the consent of all the members, or 90%, etc.). Entrenched provisions can only be included in the articles on incorporation or with the consent of all members, and they can always be amended by agreement of all the members, or by court order (sec 22). Entrenched provisions, or their amendment, must be notified to Companies House (sec23). If a company that has entrenched provisions in articles amends the articles in any way, it must register a notice of compliance with the entrenchment provisions when it notifies Companies House of the amendment (sec24).

This is in fact not new, it has always been possible to include entrenched provisions in the memorandum under the old sec17, but it has been a little used provision. It can be a very useful way of building protection for a minority shareholder into the memorandum and articles and a simpler alternative to a shareholders' agreement in some circumstances. Perhaps the new law will create a greater awareness of this possibility.

Existing companies - provisions in an old-style memorandum
These are to be treated as if they were provisions in the articles (sec28).

Resolutions and agreements affecting a company's constitution (sec29 and sec30).
Special resolutions and some other resolutions and agreements must be registered at Companies House within 15 days. Apart from special resolutions, the following resolutions or agreements must also be registered and are part of the company's constitution:
· One agreed to by all the members which would not be effective unless passed as a special resolution (e.g. a written special resolution), or by some particular majority or in some particular manner (e.g. because of entrenched rights under sec22, above).
· One agreed to by all the members of a class which would not be effective unless passed by some particular majority or in some particular manner.
· One that binds all the members of a class though not agreed to by all the members (e.g. variation of class rights).
· (Any other resolution or agreement to which this Chapter applies by virtue of any enactment.)

Statement of company's objects (sec31)
Under the new Act here is no restriction on a company's objects unless the articles provide one. Most new companies will not have any restriction. Any amendment of the objects must be registered at Companies House and is not effective until entered on the register. (Companies that are charities are subject to the existing restrictions under the Charities Acts, and any alteration requires the consent of the Charity Commissioners in the case of companies registered in England and Wales.)
A member is entitled on request to a copy of the articles and other constitutional documents, including a current statement of capital (sec32).

Sec33. Effect of constitution
The provisions of the constitution (which include the resolutions covered by sec29) bind the company and its members, and money payable by a member to the company under a term of the constitution is a debt.

A company's capacity and powers of the directors to bind the company (sec39 - sec52)
These provisions are broadly re-enactments of the existing law, covering a company's capacity (sec39), the power of the directors to bind the company (sec40), constitutional limitations when directors or their associates have interests (sec41 and sec42), company seals (sec45, sec49 for seal for use abroad, sec50 for seal for share certificates only), execution of deeds (sec46), execution by attorney (sec47), Scottish formalities (sec48), pre-incorporation contracts (sec51), bills of exchange and promissory notes (sec52).Note, however:

Execution of documents (sec44)
(Except for Scotland) a document is executed by a company by the affixing of its common seal (good old Victorian drafting) or by signature on behalf of the company by two authorised signatories, or by a director in the presence of a witness who attests the signature. The only authorised signatories, however, are directors and the company secretary. This is a very restrictive provision.

Company names (sec53 - sec85)

General requirements
There are very few real changes in the law, but the legislation is organised in a different way from the old law. The biggest change is the introduction of a company names adjudicator (sec69).

Prohibited names (sec53)
A company must not be registered by a name if, in the opinion of the Secretary of State, its use would constitute an offence or it is offensive. (As under the old law, the powers of the Secretary f State will be exercised by Companies House)

Names suggesting connection with the government or a public authority (sec54)
Approval is needed to register a company by a name that would be likely to give the impression that the company is connected with the government, a local authority or any public authority specified in regulations. (The words in italics are new. Regulations have not yet been made at the time of writing.)

Other sensitive words or expressions (sec55)
Approval is required for a company to be registered by a name that includes a word or expression specified in regulations. (Regulations have not yet been made at the time of writing.)

Sec56. Duty to seek comments of government department or other specified body
Regulations may be made under sec54 and sec55 requiring the views of a government department or other body to be sought in respect of a proposed company name. When applying for registration of the company the application must state that the request was made and include a copy of the reply. These rules apply also to a name change.

Permitted characters, etc. (sec57)
Regulations can be made specifying what letters and other characters (punctuation, accents, etc. The DTI has asked for comments on what characters should be available. (Regulations have not yet been made at the time of writing.)

Indications of company type (sec58 - sec65)

PLCs (sec58)
The company's name must end in 'public limited company' or p.l.c. or Welsh equivalents (except for PLC CICs). (Can be upper or lower case, with or without full stops and in different format from that registered, e.g. as to font, etc.: sec85.)

Private limited companies (sec59)
The company's name must end in 'limited' or 'ltd' or Welsh equivalents (except for CICs). (Again, can be upper or lower case, with or without full stops and in different format from that registered, e.g. as to font, etc.: sec85.)

Exemption from requirement to use 'limited' (sec60)
Exemption is available if the company is a charity or is exempted under regulations to be made. The DTI has asked for comments as to criteria for exemption. Sec61 and sec62 continue exemptions for companies that had them under previous legislation. By sec63 a company exempt from having 'ltd' etc, may not change its articles so that it ceases to be eligible for the exemption. (It would be necessary to change the name first so that it did end in 'ltd'.) If a company ceases to be eligible it may be ordered to change its name: sec64.

Sec65. Inappropriate use of indications of company type or legal form
Regulations may be made prohibiting the use in a company name of words, etc. associated with a particular type of company or form of organisation, or which are similar thereto.

Similarity to other names

Name not to be the same as another in the index (sec65)
A company must not be registered by a name that is the same as another name on the index of companies. Regulations can be made supplementing this section specifying the matters to be disregarded and those to be regarded as the same. They may also permit such a name to be registered either in specified circumstances or with specified consent. (Regulations have not yet been made at the time of writing.)

Name too like an existing name (sec67)
A company which has been registered in a name that is too like a name on the index, or which should have been, can within 12 months of such registration be directed to change its name. Regulations can be made supplementing this section. (Regulations have not yet been made at the time of writing.)

Objection to company names adjudicator to a company's registered name (sec69 - sec74)
The Act brings in a new right to object to the registration of a company with a particular name to a new company names adjudicator. At first sight, this appears to be a very useful provision for the protection of existing company and other trading names, operating alongside both the long-established tort of passing off, and the power of the Secretary of State (in practice Companies House) to order a name change where the name is too similar to a name already registered (preserved in sec67 of the new Act). In practice, the new provision is severely limited by the scope of the defences to an order being made, set out below. One of these is simply that the company is operating under the name objected to, which is the very situation that would cause concern to the person trying to protect their established goodwill in the name. The provisions are:

A person ('the applicant') may object to a company's registered name to the company names adjudicator on the ground that the new name is the same as a name associated with the applicant in which he has goodwill or that the new name is sufficiently similar to such a name that its use in the UK would be likely to mislead by suggesting a connection between the company and the applicant.

If one of the above grounds is shown, the objection will be established (and an order made, see below) unless the respondents (the company or its directors) can show either:
· that the name was registered before the commencement of the activities on which the applicant relies to show goodwill, or
· that the company is operating under the name, or
· or is proposing to do so and has incurred start-up costs, or
· was formerly operating under the name and is now dormant, or
(unless, in any of these cases, the applicant shows that the main purpose of the respondents (or any of them) in registering the name was to obtain money (or other consideration) from the applicant or to prevent him from registering the name), or
· that the name was registered in the ordinary course of a company formation business and is available for sale to the applicant on the standard terms of that business, or
· that the name was adopted in good faith, or
· that the interests of the applicant are not adversely affected to any significant extent.There are provisions for the appointment of company names adjudicators and for the promulgation of procedural rules (sec 70 and sec71).

If the adjudicator decides in favour of the applicant, he must make an order requiring the company to change its name to one that is not the same or similar, and requiring all the respondents to take all such steps as are within their power to make, or facilitate, the change and not to cause or permit any steps to cause another company to be registered with the same or a similar name (sec73). The adjudicator's decision and the reasons for it must be made public within 90 days (sec72). There is a right of appeal to the court (sec74).

Change of name (sec77 - sec 85)
A company continues to be able to change its name by special resolution, but there is a new provision that the name could also be changed by means provided for in the company's articles, such as by resolution of the directors (sec77). In either case, notice must be sent to Companies House, in addition to a copy of the special resolution, or a statement that the change is authorised by the articles, as applicable (sec78). As under the old law, the name change takes effect on the issue of the certificate and existing rights and obligations of the company are not affected by the change.

Trading disclosures (sec82 - sec85)
Sec82 allows the Secretary of State to make regulations requiring companies to display specified information in particular locations (such as the registered office or place of business), in particular documents (such as business letters, etc.) and when requested by those dealing with the company. No regulations have yet been made. The civil and criminal consequences sec83 and sec84) of failure to comply remain.

Registered office (sec86 - sec88)
Very little change. Every company must have a registered office in the jurisdiction in which it is registered, and can change the address from time to time by giving notice to Companies House on the requisite form.

Re-registrations (sec89 - sec111)
As under the 1985 Act, a company may by re-registration alter its status-
(a) from a private company (with a share capital) to a public company (sec90 - sec96);
(b) from a public company to a private company limited by shares (sec97 - sec101);
(c) from a private limited company to an unlimited company (sec102 to sec104);
(d) from an unlimited private company to a limited company (sec105 - sec108); and
(e) from a public company to an unlimited private company (sec109 - sec111).

Note that there are still no provisions to enable a company limited by shares to be re-registered as a company limited by guarantee (or vice versa), nor for the conversion of an LLP to a company limited by shares (or vice versa), which are unfortunate omissions.

Private company becoming public (sec90 - sec96)
This is essentially a very similar procedure as under the 1985 Act. The change is effected by the general meeting passing special resolutions for the company to be re-registered as a PLC and to make the necessary changes to the memorandum and articles. The company must meet the minimum capital requirements of a public company (£50,000) and there must be an auditors' report on a balance sheet to a date that is not more than seven months prior to the date of the special resolution. Minor changes are that, if the company does not have a secretary (as permitted under sec270 of the new Act), one must be appointed and notified (sec94(1)(b)), and the statement of compliance is no longer a statutory declaration (sec94(3)). On acceptance of the re-registration application, the registrar has to issue a new certificate of incorporation (sec96).

Public company re-registered as a private company (sec97 - sec101).
Again, very little change from the procedure under the 1985 Act. The change can be effected by the members passing special resolutions to re-register and to make the necessary changes to the name and the articles. As under the old law, the holders of 5% of the shares (or of any class) have 28 days in which to object to the court.

Private limited company re-registering as unlimited (sec102 - sec104)
This requires the assent of all the members and special resolutions to change the name and articles, provided the company has not previously been registered as unlimited. Again, there is little change from the 1985 Act provisions.

Unlimited company re-registering as limited (sec105 - sec108)
This also continues to be possible by special resolutions, with the necessary changes to the name and articles, but not if the company has previously been registered as limited.

Re-registration of public company as private and unlimited (sec109 - sec111)
This rather unlikely event can be effected with the consent of all the members, and provided the company has not previously been re-registered as limited or unlimited.