Company Law: The Basics

For any member or director of a residential management company, it is important to remember that you are part of a limited company and therefore you need to be aware of the legislation contained in the Companies Act 2006.  For this reason I have out together a very basic explanation of some of the terms and processes to ensure you are acting within the law.

The Memorandums of Association:

This is simply an agreement set out by the company’s initial members (subscribers) to form the company. Under earlier versions of the Companies Act you may have found the objects or aims of the company in the memorandums; however the 2006 Act places no requirement for this to be included.

The Articles of Association:

The articles are the rules (over and above the Companies Act 2006) by which the company is to be run. They will cover things such as the conditions for membership, the conditions for directorships, how to convene general meetings, how general meetings are to be run and more. Any decision made which goes against what is set out in the articles becomes invalid. Therefore it is very important to familiarise yourself with the articles before taking any action on behalf of the company.


Resolutions:

A resolution is a proposal, made by a director or member, which can be discussed and voted on at general meeting of the company. There are two types of resolution,

1. An ordinary resolution which requires a majority of those in attendance at the meeting (who have voting rights) to vote in favour to carry it.
2. A special resolution, which is required to change a company’s name or make amendments to the articles. This type of resolution requires at least 75% of those in attendance (who have voting rights) to vote in favour to carry it.

It is possible to have resolutions passed via a postal vote instead of calling a general meeting. However, in this case a majority of the whole membership (ordinary resolution) or over 75% of the whole membership (special resolution) is required to win the vote. In simpler terms any votes not returned are counted as “NO” votes.


Calling General Meetings:

You may have heard that following the Companies Act 2006, Annual General Meetings are not required. This is true for any companies incorporated following the act but, if your company’s articles require you to call an AGM then you will have to call one. You can, however, call a general meeting to pass a special resolution to dispense with AGMs (see above). General meetings of the company are the responsibility of the board of directors to call, although members can force a general meeting if at least 10% of the voting capacity demands it.

Notice of general meetings must be given to all members and any others specified in the articles. Under the 2006 Act, meetings will require at least 14 days clear notice, but the articles may specify a different notice period. If the articles specify a longer notice period then this must be given; if the articles specify a shorter notice period then the provisions of the Act must be followed. A meeting to discuss an ordinary resolution proposing the removal of either directors or auditors before their agreed term must be notified by special notice. This is now 28 days, or longer if the articles so demand

Every notice of a general meeting must be accompanied by a statement of member’s rights, which gives them the right to appoint a proxy. No specific format for proxies is stipulated by the 2006 Act but sometimes the articles will set out a format. Proxies must be received by the company no later than 48 hours before the meeting to which they refer. This time scale over-rides anything different contained in the articles.

Any and all resolutions proposed must be included with each notice. If a resolution is deemed a special resolution then the word “Special” must be used to describe it in the notice. Failure to include a resolution with the notice, not send the notice to all members, or use an incorrect notice format, will mean all or some resolutions will not be able to be voted on at the meeting.

Appointing directors:

Directors may be appointed at any general meeting, although an ordinary resolution is required. Normally only members of the company may be directors but some articles will allow otherwise. This is certainly the case for Right to Manage companies. 

In the case of joint memberships only the first named may vote at general meetings and only the first named may become a director. Under 16s, bankrupts, the insane and the undischarged are barred by law from holding office as a director.

Procedure at General Meetings:

For any general meeting to take place there must be a quorum of members present, either in person or by proxy. A quorum is normally two people eligible to attend and vote, however the articles may specify a larger number.

Each general meeting must have a chairman, the chairman should be a director selected by the board or, if no director is present, a member may be elected to the chair by the assembled membership. At most general meetings for residential management companies you may find the property manager acts as chair. For this to be acceptable the members attending the meeting should agree so before official business begins.

Each member has one vote unless the articles state differently, remembering that for joint memberships only the first named has voting rights. Voting will normally be by show of hands. When voting on a show of hands every member present or represented by proxy shall have one vote, regardless of how many properties they own (more properties usually means more votes, check the articles). To enable multiple votes to be used the chairman would need to declare that the voting will be by poll or at least 5 members or by members representing at least 10% of the total voting rights would need to demand a poll. A poll may be demanded either before any votes are cast or immediately upon the outcome of a show of hands.

Annual Accounts and Annual Returns:

Every company must file at Companies House its annual return and its company accounts. This is the responsibility of the directors. The Annual Return contains details of the registered office, the names and addresses of directors, a current shareholder list (if shares are issued) and certain other information. If the annual return is not filled it will result in the company being dissolved and it is also a criminal offence for which each director is liable for. If your company has a company secretary then it will be their responsibility to file the return however the directors are still legally responsible. 

The company accounts must be submitted within 9 months of the year end. Late submission results in automatic civil fines for the company and is also a criminal offence by each and every director. You may find that due to the need for service charge accounts, quite a lot of agents file the statutory company accounts dormant. Therefore there should never be a time where these accounts are filled late at Companies House. The accounts do need to be signed by a serving director, make sure your agent has a correct address so any delays can be avoided, therefore reducing the risk of fines.

I hope you found are introduction to Company Law useful and informative. Remember that each Company is different because each set of articles are different. If you have any specific queries then please get in touch.