Memorandum of Association

October 2009

A company’s constitution and the rules governing its administration are set out in its memorandum of association and its articles of association. The Companies Act 2006 makes some changes to the content of these documents.

From 1 October 2009 the memorandum of association will no longer form part of a company’s constitution. Nevertheless, a memorandum of association is still required to be filed in order to incorporate a new company.

The new memorandum must be in a prescribed form and contains limited information compared to the memorandum that was required prior to 1 October 2009.

From 1 October 2009 the memorandum of association of a company is simplified and only states that the subscribers wish to form a company under the 2006 Act, have agreed to become members and, in the case of a company that is to have a share capital, to take at least one share each. Consequently, the new memorandum no longer contains the following information:
- the location of the company’s registered office;
- the type of company and its liability status;
- the object of the company; and
- the authorised share capital.

The changes to the memorandum of association bring in two important relaxations, namely the abolition of the ultra vires doctrine and the removal of the authorised share capital.

Ultra Vires Doctrine

Companies incorporated on and after 1 October 2009 have unrestricted objects because the memorandum of association no longer contains the object clause. The ultra vires doctrine is therefore abolished.

For existing companies to take advantage of the changes introduced by the 2006 Act in relation to the abolition of the ultra vires doctrine, they must pass a special resolution prior to, but with effect from, 1 October 2009 in order to change their memorandum of association and delete those provisions that otherwise are to be treated as forming part of their articles. Otherwise, since provisions in the memorandum of existing companies that no longer are part of the new memorandum from 1 October 2009 are treated as provisions of the articles, from that date existing companies that want to benefit from the abolition of the ultra vires doctrine can pass a special resolution in order to amend their articles or adopt new articles of association.

Authorised Share Capital

Another change introduced by the Companies Act 2006 is the abolition of the concept of authorised share capital.

The authorised share capital is the maximum amount of shares that a company can issue. From 1 October 2009 there is no restriction on the amount of shares a company can allot unless otherwise restricted by the articles of association. Traditionally, the authorised share capital is contained in the memorandum of association thus existing companies, if they want to take advantage of the changes introduces on the 1 October 2009, should pass a special resolution in order to change the memorandum of association (before 1 October 2009 but with effect from that date). Alternatively, since the provisions in the memorandum of association that are no longer present in the new memorandum will be treated as provisions of the articles, existing companies could, from 1 October 2009, pass a special resolution in order to amend their articles or in order to adopt new articles.

A further consequence of the abolition of the concept of authorised share capital is that companies will only need to file a statement of capital with the Registrar of Companies every time there is a change in the amount of the company’s issued share capital.

Changes to the Memorandum of Association

For companies incorporated on and after 1 October 2009, the constitutional information that was previously set out in the memorandum is now set out in the articles. Please note that for existing companies (companies incorporated before 1 October 2009) the provisions currently in their memorandum which no longer appear in the memorandum of a new company will be treated as provisions of the company’s articles. Existing companies are not required to amend their memorandum and articles to reflect the changes, but they may do so if they wish.

From 1 October 2009, as a default position, a newly incorporated company has unrestricted objects unless it specifically chooses to restrict its objects by taking steps to include such restrictions in its articles. However, the position for existing companies is different. Until an existing company amends its memorandum or amends its articles or adopts new articles which do not contain restrictions on its objects that existing company will continue to be subject to the restricted objects.

The contents of this Newsletter are for reference purposes only and do not constitute legal advice. Independent legal advice should be sought in relation to any specific legal matter.

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