What the Companies Act 2006 means for your charity

If you are a director of a charitable company, you will already be aware of the Companies Act 2006. The Act has been brought into effect in several stages, the last of which was implemented on October 1^st 2009.

So, perhaps now is a good time to look back and take in the effect of the Act as a whole and what it means for your charity. Here are a few points we recommend you bear in mind:

Memorandum and Articles - new companies are now incorporated with a single constitutional document: the Articles of Association. The Memorandum of Association is now just a single page stating the intention to form a company. Existing companies changing their Memorandum and Articles must also re-format the document to form a single document, in addition to the changes you actually want to make!

Company Names - new charitable companies are automatically exempt from the requirement to have the word “limited” in their name.

Electronic communications - subject to certain conditions, formal correspondence between a company and its members can be conducted by e-mail or other forms of e‑communication defined by the Act.

Casting vote - under Articles adopted after 1 October 2007, the Chair cannot have a casting vote at a general meeting. However, he can have a casting vote at a board meeting where permitted by the Articles.

Annual General Meetings - there is no longer a requirement for a company (other than a plc) to hold an AGM, though it may still be good practice to do so for some charities, particularly those with large memberships.

Members’ Meetings - meetings of the company members are now simply called ‘general meetings’, not ‘extraordinary general meetings’. Only 14 days’ notice is now required for any general meeting, although the Articles can make provision for longer notice and directors may wish to do so for certain types of general meeting such as AGMs or where special resolutions are proposed.

Members’ proxies - members of charitable companies have the right to appoint proxies to act on their behalf at meetings. Notices of general meetings must refer to this right.

Written resolutions - members may agree in writing to resolutions rather than at a meeting. A simple majority is needed for ordinary resolutions and a 75% majority for special resolutions. The Articles can impose a higher percentage if appropriate.

Accounting - requirements for preparation and scrutiny of the accounts of charitable companies have been brought into line with those for non-company charities. The thresholds are now as follows:

·        Gross annual income less than £25,000 - no external examination

·        Income £25,000-£500,000 - independent examination

·        Income above £500,000 or assets over £3.26m and income over £250,000 - audit

Company Secretary - it is no longer necessary for companies (other than plcs) to have a company secretary. However, companies will still need to ensure compliance with annual paperwork requirements and other matters, so it is good practice to allocate responsibility for this to someone even if there is no formal company secretary.

Conflicts of Interest - directors’ duties in this are now much broader. From October 1^st 2008 directors have been under a statutory duty to avoid a situation in which they have, or can have, a direct or indirect interest that conflicts, or possibly may conflict, with the interests of the company. For charitable companies, the duty does not apply in relation to any arrangement permitted by the company’s Articles.

Other directors’ duties - directors’ duties, previously found in various sources, are now codified in one location in the Companies Act. As well as the duty to avoid conflicts of interest mentioned above, these duties include the duty to promote the interests and success of the company (ie. to fulfil the objects in a charity’s case) and to consider the environmental impact of any actions considered by the company.

If you have any questions or concerns on the application of the Companies Act to your charity, please do not hesitate to contact Chris Knight, Hewitsons’ Head of Charities, at chrisknight@hewitsons.com