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Implementation of the Companies Act 2006 – Oct 07
Companies limited by guarantee - how is your organisation affected?
1 October 2007
The Companies Act 2006 - one of the largest pieces Meetings and resolutions
of legislation ever drafted - hit the statute books in Annual general meetings
November 2006. The 2006 Act is being implemented
From 1 October 2007, private limited companies are
in stages - with the most substantial part to date having
no longer required to hold an annual general meeting,
come into force on 1 October 2007. More sections of the
unless there are any provisions contained in their articles
2006 Act will come into force on 6 April 2008, with the
of association which state otherwise. Accounts no longer
remainder being implemented by 1 October 2008.
need to be laid before the members of the company in
This briefing note highlights key provisions of the 2006 general meeting; and there is no longer a need to re-
Act which came into force on 1 October 2007 - focusing appoint the auditors on an annual basis (see below) unless
on those which are of particular relevance to companies the members specifically require this.
limited by guarantee.
For those companies limited by guarantee which follow
The changes include: the membership model (i.e. where there is a wider body
of members who periodically elect/re-elect directors,
• abolition of the statutory requirement to hold
and take decisions on matters such as alterations to
an AGM
the articles), it is very likely that they will want to retain
• reduction in the statutory periods of notice for the requirement for annual general meetings. The
AGMs and EGMs AGM represents an important opportunity for two-
• the introduction of a statutory right to appoint way communication between the board and the wider
a proxy membership of the company – and continuing with
arrangements for retiral and re-election of directors
• new procedures for written resolutions
(notwithstanding that these are often in practice treated
• a new approach to re-appointment of auditors as formalities) is important from the point of view of
accountability of the board to the wider community
• a statutory statement of directors’ duties
that it serves (whether a geographical community, or a
Many of these changes cut across the provisions that community of interest).
normally appear in the articles of association of companies
The articles of association of most companies limited
limited by guarantee.
by guarantee take it as read that an AGM will require
It is very important, therefore, that you consider the to be held to comply with companies legislation – so
impact on your company, and take steps to adjust your for most companies operating in the third sector, what
articles of association if appropriate. will be required will be to insert within the articles a
provision stating specifically that an AGM must be held
notwithstanding that an AGM is not required under the
2006 Act. The adjustments to the articles will require to
be dealt with via a special resolution at an EGM (or at an
AGM, if that would be more convenient).
Burness LLP Edinburgh 0131 473 6000 Glasgow 0141 248 4933 www.burness.co.uk
For completeness, it should be noted that there is a small As a small technical point, it should also be mentioned
minority of companies limited by guarantee in the public that the ability to convene an AGM or EGM with a shorter
or third sectors where the AGM plays little or no part in notice period than that which is required under companies
securing accountability to the membership (eg companies legislation and a company’s own articles has now been
which have adopted a partnership model, with the reduced. Short notice of AGMs/EGMs now requires the
membership consisting of only a few key partner bodies). consent of 90 per cent of the voting members of the
In relation to companies within this special category, it may company. For third sector companies operating with a
be felt appropriate to dispense with AGMs – and in that wide membership, however, it is still unlikely that the
case, a careful review of the articles of association should facility to call an AGM or EGM at short notice will be
be carried out to check whether there is any provision possible at a practical level, given the difficulty in obtaining
there which requires an AGM to be held. The other area consent from a large number of individual members (or
which requires consideration is how best to re-work other member-organisations).
provisions in the articles which are currently tied to the
Notice of general meetings may be given in hard copy
date of the AGM (eg provisions regarding the retiral/
or (where a member has agreed to receive notices in
re-appointment of directors and office-bearers). Those
electronic form and has notified the company of an
procedures could instead be linked to the anniversary
electronic address for this purpose) by electronic means
of the date of incorporation or the accounting reference
(eg by e-mail) or via a website (provided that certain
date (financial year end). Once the wording of the various
conditions are met – including advising members that
technical adjustments has been finalised, it will then be
the notice has been posted on the website). It may be
necessary to pass the appropriate formal resolution at an
necessary to adjust a company’s articles to enable it to
EGM/AGM or possibly by way of a written resolution.
communicate with its members via a website (where its
Types of resolutions articles do not already allow this) - otherwise the company
will need to seek the approval of its members to send/
Under the 2006 Act, resolutions passed by the members
supply documents and information via a website.
of a company will be either ordinary or special resolutions;
extraordinary and elective resolutions have been Chairperson’s casting vote at AGMs/EGMs
abolished.
The definition of “ordinary resolution” contained in the
Notice periods for general meetings 2006 Act refers only to votes of members. Accordingly,
on a strict interpretation that means that a chair’s casting
The notice period for general meetings of private limited
vote cannot be counted, even if the articles of a particular
companies (ie AGMs and EGMs) is now set at 14 clear
company suggest otherwise. If your articles currently allow
days for all matters. Previously, 21 clear days’ notice was
for a chair’s casting vote at AGMs/EGMs, it would be as
required for an AGM; or for an EGM at which a special
well, therefore, to amend that provision. It should be noted
resolution was to be proposed. The articles of association
that there is no difficulty in the chair of a board meeting
of a company can set a longer notice period, which will
having a casting vote.
prevail over the statutory periods of notice. Accordingly,
if a company is looking to take advantage of the reduced
statutory notice periods, it is likely that it will have to make
appropriate adjustments to the provisions within its articles
which deal with issuing notices for AGMs and EGMs (and
this may also extend to provisions defining what is involved
in a “special resolution”).
Burness LLP Edinburgh 0131 473 6000 Glasgow 0141 248 4933 www.burness.co.uk
Proxy voting It should also be noted that, in order to comply with the
2006 Act, every notice of AGM or EGM must now include
Every member of a company now has the right to appoint
a statement notifying each member of his/her/its right to
another person as his/her/its proxy – irrespective of what
appoint a proxy.
is said in a particular company’s articles of association. A
proxy will be entitled to exercise all of the rights of the Written resolutions
member who appointed him/her and to attend, speak
A new regime has been introduced in relation to written
and vote at the AGM/EGM for which he/she has been
resolutions. Under the previous regime (applying prior to
appointed.
1 October 2007), in order for a resolution to be passed as
Where existing articles do not include provision for proxy a written resolution (rather than being passed by a vote at
voting, it would be as well, therefore, to alter the articles of an AGM/EGM) all of the members of the company had to
association so as to make it clear that proxy voting is in fact sign the resolution. From 1 October 2007, any resolution
allowed – and to set out the detailed procedures for proxy in writing of a private limited company will require to
voting so that there is clarity about what is required. meet the threshold for approval which would apply if
the resolution were passed at a general meeting i.e.
In tailoring articles for third sector companies limited by
where an ordinary resolution is to be passed by way of a
guarantee, a specific decision was taken in many cases that
written resolution this will require the approval of a simple
votes at an AGM or EGM should only be given personally.
majority; and likewise, any resolution in writing deemed to
The rationale for taking that approach was often a view
be a special resolution will require 75% approval (also, the
that members ought to attend the AGM/EGM and hear
resolution must specify that it is to be a special resolution).
the arguments for and against a particular resolution. In
certain instances, there was also a concern that if proxy The new regime will apply regardless of what is said in a
voting was allowed, a member with a particular agenda company’s articles. Accordingly, if a particular set of articles
might go round a large number of members presenting a includes provisions defining what is involved in a written
one-sided argument and collecting proxy votes, such that resolution, it would be advisable for the articles to be
he/she was then able to force through the resolution with a amended to avoid confusion.
large block vote.
The company will have an obligation to send a copy of the
As noted above, the 2006 Act states that the right to proposed written resolution to every eligible member -
appoint a proxy will prevail over any provisions to the that is, every member entitled to vote at a general meeting
contrary in a company’s articles of association – so the (AGM/EGM) of the company. The requisite proportion
basic principle of proxy voting cannot be excluded. of the members of the company must indicate their
Nevertheless, there may be other mechanisms (eg limiting agreement to the written resolution within a set period.
the number of votes that a given proxy can cast) which The period for indicating agreement can be set out in
might be adopted within the articles to reduce the risk of the articles of association of the company. However, if
a block vote – if indeed that is considered to be a point of the articles are silent, a statutory minimum of 28 days will
concern. apply.
The provisions of the 2006 Act have also introduced The removal of auditors and directors will continue to
changes to the time limits for receipt of proxy forms which require a resolution passed by the members in general
a company can include in its articles – and again, this may meeting.
necessitate technical amendments to a company’s existing
Although the changes in the detailed requirements for
articles where these already allow for proxy voting.
written resolutions (in particular, dispensing with the need
for each and every member to sign), may widen the
Burness LLP Edinburgh 0131 473 6000 Glasgow 0141 248 4933 www.burness.co.uk
opportunity to use the written resolution procedure as In light of the changes highlighted in this briefing note, we
an alternative to an EGM, it is likely to remain something would strongly recommend that you undertake a review of
that, as a matter of practice, is helpful only in the context the provisions of your company’s articles of association - to
of companies with a small membership. Also, there determine which (if any) of the provisions may require to
may be a feeling that there is a benefit in having the be updated to bring the company’s constitution into line
resolutions proposed at an AGM or EGM, so as to allow with the 2006 Act.
the opportunity for members to challenge and debate the
Many companies will be comfortable with taking forward
issues.
any necessary alterations to the articles of association
Re-appointment of auditors themselves. If, however, you require legal assistance in
relation to this exercise, the members of our specialist
Auditors must be appointed to a private limited company
Public & Third Sector Team would be happy to advise;
for each financial year unless the directors resolve
and on the basis of a pre-set fee quotation. If you require
otherwise on the ground that audited accounts are
specialist legal advice, please contact Gillian Harkness.
unlikely to be required. In many cases, an audit will still be
required, irrespective of the statutory position – to meet The next key stage of implementation of the 2006 Act will
specific grant conditions imposed by a funder. be 6 April 2008. We will circulate a further guidance note
at that time.
The auditors will normally be appointed within 28 days
after the accounts for the previous year are circulated to This briefing note sets out a summary of the law at the
the members. If the auditors have not been re-appointed time of writing and is for information purposes only.
within that 28-day period, then the auditors will be
If you would prefer to receive information by email or if you
deemed to be automatically re-appointed unless (a) an
would like us to remove you from our mailing list, please
appointment was made by the directors during that period
contact burnessinfo@burness.co.uk
or (b) the articles require re-appointment (and if this is the
case, then a change to the articles may be desirable to
take advantage of the provisions of the 2006 Act regarding
deemed re-appointment) or (c) the the directors resolve
that no auditor is required for that financial year. There are
mechanisms whereby the members may prevent auditors
being re-appointed, but that is very unlikely to arise in
practice. Gillian Harkness, Solicitor
There is accordingly no longer any requirement for a Direct Dial 0141 273 6785
formal resolution for the re-appointment of auditors to be gillian.harkness@burness.co.uk
proposed at the AGM.
Statutory statement of directors’ duties
Reference should be made to the separate briefing note
on the topic of directors’ duties.
Stephen Phillips, Partner
0141 273 6764
stephen.phillips@burness.co.uk
Burness LLP Edinburgh 0131 473 6000 Glasgow 0141 248 4933 www.burness.co.uk
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