3.1 - Constitution prepared by directors

Business Law 05/06/2015

This practice note deals with the preparation and registration of a new constitution by directors of a private company limited by shares (an LTD).

When should the directors prepare and register a new constitution?

Under s60 of the Companies Act 2014, the directors of a company have an obligation to prepare and register a new constitution before the expiration of the transition period (currently expected to expire on 1 December 2016) unless the company:

  • Has already adopted a new constitution by action of the members,
  • Is required to re-register as a designated activity company (DAC),
  • Is proceeding to re-register as a DAC or as another type of company, or
  • Is required by a s57 order to re-register as a DAC or proceedings with respect to such re-registration are pending. 

How do directors prepare their new constitution?

There are very specific actions to be taken by the directors to prepare the constitution. These actions are contained in s60(3) of the act. There is no scope for the directors to amend the existing memorandum and articles other than as prescribed.

The following is a checklist of actions to be taken:

Delete:

  1. The objects from the memorandum of association, and
  2. Any provisions that allow for or prohibit the alteration of any part of the memorandum or articles of association.

State:

  1. The company鈥檚 name in the form 鈥榌COMPANY NAME] Limited鈥,
  2. That the company is a private company limited by shares registered under part 2 of the Companies Act 2014,
  3. That the liability of the members is limited,
  4. The authorised share capital and the division of that capital into shares of a fixed amount of a certain value (note the requirement for an authorised share capital for a new company has been made optional; however, it is not within the scope of this revised constitution prepared by directors to drop reference to authorised share capital),
  5. The number of shares taken by each subscriber, and
  6. The previous articles of association without modification of their content.

The constitution must:

  1. Be in a form as near as circumstances permit to that shown in schedule 1 of the act, and
  2. Be divided into paragraphs and numbered consecutively.

This may lead to a situation where the share capital of the company is listed at regulation 4 (in accordance with the form contained in schedule 1) and the share capital is again listed in the restatement of the previous articles of association. In this situation, the conservative approach is to allow the duplication.

In those rare cases where a private company limited by shares (as distinct from a company limited by guarantee) is exempt from including 鈥榣imited鈥濃 in its name, that exemption no longer applies (s60(3)).

Is there an example document showing these changes?

The Business Law Committee has prepared a case study demonstrating how a sample memorandum and articles of association can be converted into a constitution by the directors of an LTD. This case study is available on the Forms and Precedents section of the Business Law Committee webpage 鈥 see documents 3.2 (tracked copy), 3.3 (clean copy) and 5.2 (sample memorandum and articles of association).

Our company does not have an articles of association document. What do we do?

Where a company has adopted Table A articles without modification, such companies should include a statement that 鈥渢he articles of the Company comprise the regulations at Table A in the first schedule to the Companies Act 1963鈥 (s60(4)).

Why do we refer to Table A in our new constitution when the Companies Act 1963 is being repealed?

References to Table A in the constitution shall be read as references to the corresponding provisions of the act. Where the act and Table A do not agree, the act鈥檚 provisions will prevail (s60(6)).

Table A regulations are treated as having been updated into the form in which they existed on the date of the repeal of the Companies Act 1963 (s60(7)).

There are special rules that apply for companies governed by model regulations contained in pre-1963 Companies Acts. Please see sections 5 and 6 of the act for guidance on savings and transitional provisions.

Is there a requirement for the subscribers to sign the amended constitution?  

Section 19(2)(c) of the act states that a constitution shall either be signed by each subscriber in the presence of at least one witness or be authenticated 鈥渋n the manner referred to in section 888鈥. Section 888 states that a document may be authenticated in the prescribed manner. Ministerial regulations relating to s888 have yet to issue. 

Current practice for an existing company when submitting an amended memorandum and articles to the Companies Registration Office is to include the list of original subscribers and their holdings, but such subscribers are not required to sign the revised memorandum and articles.

It is expected that this practice will continue with respect to the submission of the constitution prepared by directors of an existing private company to convert to an LTD. 

The constitution is prepared. What next?

To adopt the new constitution, the directors should take the following steps:

  1. A copy must be delivered to each member of the company, and
  2. Delivered with Form N1 to the Companies Registration Office for registration. Please consult guidance from the Companies Registration Office on the requirements for completion of this form.

Once registered, the Companies Registration Office will issue a new certificate of incorporation stating that the company is registered under part 2 of the act.