The Companies Act 2006 was given royal ascent in November 2006. The latest act updates the previous Companies Act 1989 and has introduced significant changes to the way limited companies operate. The changes have been implemented on over a staged period to allow companies time to update their constitutional documents to reflect the changes.
The constitutional documents for UK companies are called the memorandum of association and the articles of association. These should clearly define the activities of the company, and set out the structure of the company.
The memorandum of association typically states the company name, the objects which define what the company will do, the extent of the members liability, the authorised share capital, the value of the shares and the number of shares issued at the time of incorporation.
The articles of association states how the company will operate. This may include how shares are allotted and transferred, how and when meetings shall be conducted, how company officers are appointed or replaced, and how the company seal is to be used. This document is derived from the Companies Act is often referred to as Table A. It is common practice for the articles of association to be amended to adopt various sections of Table A.
One of the major changes to the Companies Act is the amendments to company officer requirements. From April 2008 it is now possible to operate as a sole director company. There is no requirement to have another company officer appointed. However, this change will mean that many companies will need to update their constitution. Many companies may find that their current memorandum and articles of association do not reflect this important change to legislation.
A further change to the appointment of company directors was implemented in Nov 2008. The new laws now prohibit the use of sole corporate directors for any company registered after November 2006. This means that a person needs to be appointed as a director of the company and that a corporate body cannot be appointed as a director unless another person is appointed at the same time.
If a company wants to switch to being a sole director organisation the memorandum and articles of association should allow for a single officer to make decisions without the need to appoint a secretary ro second director. This may require new documentation to be adopted as the new constitution for the company. If the existing memorandum and articles of association do not allow for sole directors then the company may be operating unlawfully.
It is not acceptable for a UK registered entity to ignore changes to the Companies Act. Appointed officers are legally responsible for ensuring that the company operates within the law and that all of the legally required documents are correct.