Reed Smith Client Alerts

Almost eight years after the final phase of the Companies Act 2006 (the 2006 Act) came into force, some companies first incorporated under the Companies Act 1985 (the 1985 Act) are still experiencing issues with objects clauses in their memorandums of association. This can lead to uncertainty and delays in completing transactions. This note sets out some ways to avoid these pitfalls in the first place and some of the arguments that can be raised to settle disputes.The following alert relates to UK companies only.

Authors: Michael J. Young

By way of background, the 1985 Act (and previous company legislation) required a company to have a list of objects in its memorandum of association. These set out the company’s entire purpose and the scope of its activities. The problem was that, although objects clauses were drafted widely, there was still room for debate as to what a company could or could not do.

A deregulatory measure in the 2006 Act set out to resolve this difficulty. This provided that, unless a company's articles specifically restrict its objects, its objects are unrestricted (section 31). This cleared up the problem for new companies incorporated under the 2006 Act (i.e., in October 2009 or later), but uncertainty remained for companies previously incorporated under the 1985 Act. How to interpret their objects set out in the old-style memorandum of association? Section 28 of the 2006 Act makes it clear that these and the other provisions of a 1985 Act memorandum of association should now be read as part of the company’s articles of association (so remain part of its constitution), but is silent about how to interpret old-style objects.