Do Your Company Rules Need Updating?

Peter Billyard, corporate services lawyer at Charles Lucas & Marshall, reviews the Companies Act and explains the final wave of changes which take effect from I October.

A frequent lament of smaller, private companies is the seemingly never ending increase in red tape they face in the form of new and more onerous laws.

The 2006 Act became law on 8 November 2006 but its sheer size and complexity has meant that it has been phased in over a three year period. The last tranche of changes take effect on 1 October.

Companies Acts are designed to set the framework in which companies with limited liability must work and have been around for some 150 years. The 2006 version aims to make it easier to set up and run a company both now and in the future – especially for smaller private companies.

One of the main changes on 1 October 2009 is that of so-called ‘Model Articles’ for newly incorporated companies.

These will replace ‘Table A’ articles.

A newly set up company can choose to adopt the model articles on their own, adopt them with adaptations or have a tailor-made set of articles.

The articles of association, are, in effect, a company’s internal rule book.

Most companies are, understandably, focussed mainly on running the business in hand and their articles tend to be of little more than academic interest to them.

They usually only assume importance when a company turns its mind to certain corporate housekeeping issues, or more commonly, when a shareholder dispute has developed.

But it is surprising how frequently these events occur.

The 2006 Act has made a number of other changes which affect the articles of companies. While none of these changes require an existing company actively to amend its articles, many companies are doing so in order to take advantage of more favourable provisions that have been introduced.

Indeed the Department for Business Enterprise and Regulatory Reform (still known by many under its previous moniker as the DTI) specifically advise that companies should carry out periodic reviews of their articles to ensure they are up to date with company law.

For more information contact Peter Billyard on 01635 521212 or peter.billyard@clmlaw.co.uk