Charities Bulletin January 2010
Companies Act 2006 - the impact on charities
The final sections of the Companies Act 2006 came into force towards the end of last year. What does this mean for charities?
In the last three years, company law has undergone a major overhaul. The Companies Act 2006 was implemented in three stages, the last of which was in October last year; it is the longest piece of legislation ever drafted and there are many changes that charities need to be aware of.
Charities can now amend their memorandum and articles to implement all of the necessary changes in one go. This will often form part of a more general constitutional review to bring the governing documents up to date, reflect any wider organisational changes, and take advantages of other legal developments such as those introduced by the Charities Act 2006.
The Act has reduced the importance of the memorandum significantly. It is now the Articles which take centre stage - and charities making any amendment to their memorandum or articles of association will need to take extra care.
Amending Articles
The first time amendments are made to the constitution of a charitable company, the memorandum will be deemed to have been removed unless it is reincorporated into the articles. This has the potential to cause serious problems for charities since their memorandum will include important provisions relating to non-profit distribution, remuneration of trustees and dissolution.
In addition to this, the objects clause which is the heart of a charity's governing document is contained in the memorandum. It will be deemed to be removed if it is not reincorporated in the amended articles. This could risk the charity being no longer defined as a "charity" within the meaning of the Charities Act 2006 as it would no longer have exclusively charitable objects.
Change of Name
Charities can now benefit from greater flexibility if they wish to change their name. Rather than having to pass a special resolution, a charity can choose to insert an option into its articles specifying a less formal procedure for changing its name. It may, for example, be appropriate to allow the charity trustees to make this decision.
Register of Members
Charities now have an additional reason to be careful when updating the register of members. There is a new obligation to inform a person who makes a request to inspect the register whether the information on the register is up to date. If the register is not up to date, there is an obligation to disclose the date up to which the information is correct.
This clearly gives rise to the prospect of considerable embarrassment if, for example, a funder requests to inspect the register of members.
What to do now
The new Act does not oblige you to do anything. However, you may consider this to be an appropriate time to revise your charity's articles to get the full benefit from the new Act.
For further information on the issues raised in this article, please contact Shiva Shivaji, head of charities at Michelmores, at shivaji.shiva@michelmores.com.
