COMPANIES: THE MEMORANDUM OF ASSOCIATION

Upon incorporation the two main documents which must be filed with Companies House are a company’s Memorandum of Association and its Articles of Association. The founders of a company must subscribe their names to the Memorandum of Association stating their intention to form a company and may therefore also be referred to as the company’s subscribers. The implementation of the Companies Act 2006, the final provisions of which were implemented in 2009, changed the required content of a Memorandum for any company incorporated on or after 1 October 2009, as compared to the Memorandum of a company previously incorporated under the Companies Act 1985.

(A) THE MEMORANDUM OF ASSOCIATION UNDER THE 1985 ACT The Memorandum for companies incorporated under the 1985 Act was a very uncompromising and binding document which expressly set out the company’s structure and was considered to be part of its constitution. It stated whether the company was a private or a public company and included some essential clauses, including a statement of the objects of the company, (in other words the company’s purpose) and a statement of the company’s authorised share capital.

(B) THE MEMORANDUM OF ASSOCIATION UNDER THE 2006 ACT The significance of the Memorandum has reduced considerably. It is now a very short statement indicating that the subscribers intend to form a company, agree to become members of the company and, if the company is to have a share capital, that they agree to take at least one share each. The Memorandum is now in a prescribed form, which was not previously the case, and must be signed by each of the members. However, the inflexible statement of the objects of the company is no longer required, and the document is now seen only as a ‘historical snapshot’ of the company’s constitution at the time of formation. Existing companies did not need to amend their Memorandum or Articles following the 2006 Act as s.28 automatically incorporated the existing Memorandum into a company’s Articles. This means that the two million or so companies already registered did not need to take any action with regard to their Memorandum unless they wanted to change something or unless a member requested a copy of the Articles. If a member of a company incorporated before 1 October 2009 wants to see the Articles, then a company must provide a copy of the Articles with an appended copy of the Memorandum. The Memorandum is appended by adding a note stating that its provisions are deemed to be provisions of the Articles.

(C) A COMPANY’S AUTHORISED SHARE CAPITAL A company’s authorised share capital is the total value in shares, using the shares’ nominal value, which a company is allowed to issue to shareholders. This amount is decided by the subscribers upon incorporation and it never changes throughout the lifetime of the company except upon the passing of a special resolution by the company’s members. However, as the authorised share capital no longer needs to be specified a company can continue to issue shares without limit. For companies incorporated before 1 October 2009, their stated authorised share capital is automatically deemed to be part of the company’s Articles and remains in force. Directors are therefore prohibited from allotting shares above the authorised limit unless the shareholders pass a resolution to increase it or revoke it.

(D) A COMPANY’S OBJECTS Until the implementation of the 2006 Act, it was a necessary requirement for a company to state its objects in its Memorandum. Any acts carried out, or contracts made outside the scope of its stated objects could be held to be unenforceable and therefore void. Many companies dealt with this difficulty by drafting extensive subclauses in the Memorandum, which sought to cover all possible commercial directions the company could take in the future. For any company incorporated before 1 October 2009, the objects in its Memorandum are now imported and incorporated into its Articles. The members of these companies are therefore bound by their objects clause and need to pass a special resolution to remove the restriction.