The Companies Act 2006 Charitable Companies Limited by Guarantee How it may affect your Memorandum and Articles of Association

16th April 2010

We refer below to Memorandum and Articles of Association (“M&A”) because it is assumed that this note will be used to assess necessary updates to companies incorporated before the 1st October 2009, however technically now all references should be to changes to the Articles.

Sections of the M&A which are automatically overridden by the Act

1.       Ordinary written resolutions now merely need to be signed by a simple majority (50% + 1) of those entitled to vote at a general meeting, whilst special written resolutions only require the signatures of 75% of the members entitled to vote.  Details of how these provisions work are laid out in full in the Act.

2.       All members are now entitled to appoint a proxy to attend speak and vote on their behalf at general meetings.  It is a requirement that the right to appoint a proxy must be stated on the notice of each general meeting.  The Act provides that the deadline for delivery of proxy forms to the company cannot be earlier than 48 hours.  If your Articles are silent on this point, then the Act will imply in 48 hours (excluding public holidays and weekends).  However it seems that if your Articles already provide for 48 hours you will need to amend your Articles to take advantage of the provision allowing you to exclude public holidays and weekends.  If your Articles make no provision for proxy voting the Act also applies to regulate how this should be done.  Since the Act’s provisions are minimal, you may wish to add provisions dealing with proxy voting if you have a large membership or think that it will be used regularly.

3.       Provisions protecting auditors from certain types of liability are void, except in so far as permitted by the Act.

4.       For companies incorporated on or after 1st October 2007, the chairman of members’ meetings can no longer have a casting vote.  The chairman of directors’/trustees’ meetings may still have a casting vote if provided for in the Articles.  (However provisions governing this in the Articles of companies registered before that date will continue to stand.)

5.       Also see 9 below.

There is no need to amend your Articles to take advantage of these provisions, except to provide clarity for the benefit of members.  As the Act automatically overrides any provisions to the contrary in your Articles.

Sections of the M&A which may be altered to take advantage of the Act

6.       There is no longer a requirement to hold an AGM.

7.       Accounts no longer have to be laid before members at an AGM.  They can  simply be sent out on or before the date they are filed at Companies House.  Articles can therefore be amended to remove the need to lay the accounts before the members.  This only applies to financial years ending after 30th September 2007.  Likewise, auditors no longer need to be appointed at an AGM. 

8.       The statutory minimum notice required for general meetings considering a special resolution is now 14 days (rather than 21 days).

9.       General meetings can now be called at short notice by 90% of members (previously it required 100% for AGMs and 95% for EGMs).  However the Articles are permitted to provide for up to 95% of members.  If your Articles provide for over 95% this will be overruled by the Act and the 90% threshold will apply. 

10.     If your Articles have a straight 48 hour period you may wish to amend them to provide for the exclusion of public holidays and weekends when calculating the number of hours.

11.     If you wish to take advantage of the deeming provisions relating to being able to post notices of meetings on your website, you will need to make sure that your Articles allow for service in this way.  Alternatively the members of the company may resolve to allow this, or you can obtain specific consent from each member.  You may also wish to update provisions relating to circulating company information by e-mail, but this is now allowed providing each member has agreed.

12.     It is no longer a statutory requirement to have a company secretary.

13.     It is now possible to delegate authority to change the company’s name to the Board of directors/trustees etc in the Articles.

In order to take advantage of any of these provisions your charity will need to amend its Articles.  If you choose not to amend your Articles, provisions in your Articles covering these points will override the Act.

Sections of the M&A which must be altered under the Act

12.     Conflicts of interest clauses (usually in the memorandum) will probably need to be updated in light of the Act to provide directors/trustees with the power to authorise situations which are, have or could give rise to conflicts of interest and which are not already authorised in the M&A. 

          The notion of what constitutes a conflict of interest has broadened under the Act to include direct and indirect conflicts; historic, current and potential conflicts; conflicts of interest and of duty and the exploitation by the director/trustee of any corporate opportunity (regardless of whether the charity could have taken advantage of it itself). 

          Under the new regime all directors/trustees conflicts of interest need to be authorised, either specifically under the M&A, by the directors/trustees themselves (under a power in the M&A) or by the Charity Commission. 

NB Conflicts dealt with under the previous legislation will continue to be valid, unless any of the circumstances have changed.

We would recommend that charities carry out a review of what links directors/trustees or their relatives/businesses may have with the charity, directly or indirectly (the review should include directorships of any trading subsidiary), and then if there are areas of potential conflict we would recommend that you update your conflict of interest provisions, which may need Charity Commission consent. The alternative is to obtain Commission consent each time a conflict arises. 

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