Unit 2: Understanding the Company Constitution

Transcription

1 Unit 2: Understanding the Company Constitution 01/13 Central Law Training 2013 Page 1 of 23

2 Unit 2 - Understanding the Company Constitution 3 Learning Objectives 3 1. Introduction 4 2. The Memorandum of Association (Memorandum) 4 3. The Articles of Association (Articles) 8 4. Shareholders Agreements 13 Page 2 of 23

3 Learning outcomes: Unit 2 Understanding the Company Constitution Learning Outcomes Assessment criteria To achieve this unit a learner must demonstrate the ability to: 1. Understand Memorandum of Association of companies formed before the Companies Act 2006 and of those formed under that Act P1: Identify the effects of the Companies Act 2006 on the Memorandum P2: Identify the two components of a company s constitution in a company formed before 1 October 2009 P3: Identify the five clauses that were included in the Memorandum of Association of a company formed before 1 October 2009 P4: Describe what the Objects clause is and explain reasons for removing it from, or retaining it in, the constitution P5: Describe what the Capital clause is and explain reasons for removing it from, or retaining it in, the constitution 2. Understand Articles of Association 3. Understand Shareholders Agreements P6: Explain what the purpose of the Articles of Association is P7: Explain the different possible default Articles and the major differences between them P8. Identify the key provisions of the default Articles in relation to Shareholders and Shares P9. Identify the effect of the Companies Act 2006 on the Articles P10. Explain what a Shareholders Agreement is P11. Identify the provisions that are commonly used in a Shareholders Agreement P12. Describe some of the reasons why parties might choose to have a Shareholders Agreement in addition to Articles of Association Page 3 of 23

4 1. Introduction Companies incorporated under the Companies Act 1985 used to have a twopart constitution comprising the Memorandum and Articles of Association. The Companies Act 2006 did not require existing companies to change these documents but certain changes were automatically effected by the Act itself. It follows that many companies formed before 1 st October 2009 will be shown at Companies House with their Memorandum and Articles of Association in the old style. The current purpose and function of each of these two documents is considered below. The main feature of the changes is that all of the clauses in the Memorandum except for the subscription clause (see Appendix 1 for a sample) automatically became part of the Articles (s.28) as from 1 st October The constitutions of companies formed under the Companies Act 2006 have just Articles of Association. Section 33 of the Companies Act 2006 provides: The provisions of a company s constitution bind the company and its members to the same extent as if there were covenants on the part of the company and of each member to observe those provisions. This provision makes no change of substance from its predecessor in the Companies Act The effect of this is the same as if each member had signed an individual contract with the company and with fellow members. 2. The Memorandum of Association (Memorandum) Historically, the Memorandum had two main purposes; to identify the business of the company and to set out its powers. As we shall see in 2.2 below, the importance of the Memorandum has diminished over time and, whilst continuing to be a statutory requirement, becomes of no more than historical significance for companies formed after 1st October However, since companies incorporated before this change may continue to have Memoranda in traditional layout, it is still important to be familiar with the key provisions. A pro forma for a Memorandum for a company limited by shares is set out as Table B in the Companies (Tables A to F) Regulations A more detailed example of a Memorandum is in Appendix 1. Task 1: Read through the Memorandum contained in Appendix 1 and answer the following questions:- 1. Where will this company be registered? 2. What is meant by the liability of the members is limited at section 4? 3. What used to be the purpose of a pre-companies Act 2006 Memorandum of Association Page 4 of 23

5 2.1 The five clauses of the Memorandum All Memoranda were required to have at least the same five clauses: Clause 1 used to set out the name of the company; it is not now required (even in the Articles) it will be stated initially in the Application for Registration (Form IN01 ) Clause 2 used to state the jurisdiction of the registered office, as mentioned in Unit 1; you will recall that this does not refer to the postal address of the company but rather the country in which it is incorporated. This is relevant to the service of official documents on the company. For incorporations under the Companies Act 2006, it will be stated on Form IN01 Clause 3 is what was known as the objects clause. It is no longer required, although an existing clause will continue to have effect. This clause will be considered in detail in section 2.2 below. Clause 4 states that the liability of the members is limited. Again, this was considered in Unit 1; you will recall that this means that shareholders who have paid in full for their shares need not contribute any further money to the company s funds in the event of it being unable to pay its debts. For incorporations under the Companies Act 2006, it will be stated on Form IN01 whether and if so how the liability of members is limited Clause 5 sets out the authorised share capital of the company. This will be considered in detail in Unit 4. As we shall see, this is the maximum number of shares which the company is authorised to issue. It is no longer required although an existing clause will continue to have effect. This clause will be considered further below The Memorandum concludes with a statement that certain people have agreed to acquire a specified number of shares in the company once it has been incorporated. This is the subscription clause and is the one clause which survives in the Memorandum of Association. Once the company is established, it is unlikely to be of more than historical interest. The subscribers ( they are said to subscribe for shares) will become the first members when the company is incorporated. It is legitimate for there to be a single subscriber. 2.2 The objects clause Historically companies, being artificial creations, could only perform actions that were specifically authorised by the objects clause of the Memorandum. It was considered important for shareholders to know the nature of the business which the company was to carry on; for example, if they had agreed to invest in a company that was to be involved in agriculture, they would not expect the company to branch out into mining. Page 5 of 23

6 Similarly, people dealing with a company, including banks who might be proposing to lend it money, would want to see that it was authorised to carry on the business in which it was engaged. In a traditional Memorandum, the objects of the company, that is its primary purpose, are set out in the first part of the objects clause. See clauses 3(a) and (b) of the Memorandum in Appendix 1. Following on from the need to identify the nature of the company s business, the objects clause was expanded to include all of the additional, ancillary powers that a company might need to conduct its business. Look at the remainder of clause 3 of the Memorandum in Appendix 1. The Latin maxim for an action which is beyond the company s powers is ultra vires. It used to be the case that any attempt by a company to do something not permitted by its objects clause and therefore ultra vires was void and unenforceable. In order to avoid the danger of the company doing something caught by the ultra vires rule, objects clauses became progressively longer as the draftsperson included more and more ancillary powers that a company might need to conduct its business. Look at the remainder of clause 3 of the Memorandum in Appendix 1. In response to these ever-longer objects clauses, an amendment was made to the Companies Act 1985 (by the Companies Act 1989) to allow a company to adopt a succinct main objects clause that would nonetheless enable a company to do whatever was necessary to carry on its business. Section 3A of the Companies Act 1985 provides: Where a company s memorandum states that the object of the company is to carry on business as a general commercial company- (a) (b) the object of the company is to carry on any trade or business whatsoever, and the company has power to do all such things as are incidental or conducive to the carrying on of any trade or business by it. The ability to adopt this new general commercial objects clause was intended to simplify and reduce the length of the main objects clauses. However, while many companies have adopted the new clause, many have clung to tradition and either continue to use the long-form objects clause alone or use the new form in conjunction with the longform see clause 3(a) of the Memorandum in Appendix 1. Banks have also remained keen to see an express power to grant charges in a company s Memorandum. Further inroads into the ultra vires doctrine were introduced into the 1985 Act by the Companies Act 1989 by inserting what is now section 39 of the Companies Act 2006: Page 6 of 23

7 The validity of an act done by a company shall not be called into question on the ground of lack of capacity by reason of anything in the company s constitution. Section 40 CA 2006 provides: In favour of a person dealing with a company in good faith, the power of the board of directors to bind the company, or authorise others to do so, shall be deemed to be free of any limitation under the company s constitution. and A person dealing with a company is not bound to enquire as to any limitation on the powers of the directors board of directors to bind the company or authorise others to do so. The cumulative effect of these provisions is that anyone dealing with a company in good faith (which is presumed unless the contrary is proved) need not be concerned as to whether the company is acting in accordance with the provisions of its constitution. Any contract entered into by a company that is not permitted (i.e. ultra vires) will nonetheless be binding on the company. A person dealing with a company in good faith need not check its constitution to make sure that a particular act is authorised. Nevertheless, the Act still requires directors to observe any limitations on their powers set out in the constitution, although if they fail to do so, their actions can be ratified (approved) retrospectively by shareholders. A company is (as from 1st October 2009) free to alter or remove its objects clause. This requires a special resolution of shareholders (a resolution that requires a majority of at least 75% of votes in favour in order to be passed). Both the special resolution and the amended Articles must be filed at Companies House. Task 2: Go to and print off section 39 and section 40 of the Companies Act 2006 and keep in your file for future reference. 2.3 The objects clause and the effect of the Companies Act 2006 The 2006 Act provides in section 31(1): Unless a company s articles specifically restrict the objects of the company, its objects are unrestricted. Page 7 of 23

8 There is therefore no longer any need to express the company s objects and powers; in the absence of anything to the contrary, they are unrestricted (provided that the activity is legal). If thought desirable, the company s objects can still be stated, but if so the objects must appear in the Articles. If asked to advise whether there may be some merit in leaving an existing objects clause or in preparing a suitable Article for a new company, the answer depends upon the circumstances: Might the other party be reassured to see express power stated in the constitution? Possibly time will tell whether this proves true, particularly in relation to lenders; whatever the psychology, it is clear that there is no real reason for setting out express powers Is it a useful device for limiting the powers of the directors to take the company into unfamiliar activities? This approach is not to be recommended because the other party to the ultra vires transaction can enforce the contract against the company as a result of s.39 and s.40 Task 3: Log onto the Companies House website and click on the Guidance tab. Open the Incorporation and Names (GP1) notes and read as far as the end of chapter 2 (pages 1-11 in the pdf version) 3. The Articles of Association (Articles) Broadly, the purpose of the Articles is to specify how the company is to be run, for example how meetings of shareholders and directors must be called and conducted, although a certain amount of this is dealt with by the Companies Act itself. In various respects, the Articles are able to make provision which varies what would otherwise be governed by the Act e.g. how many persons must be present for a general meeting to be a valid meeting (i.e. what is to be the quorum) Task 4: Read through the Articles of Association contained in appendix 2. (Keep this appendix to hand as it will be referred to in the next section). Page 8 of 23

9 3.1 Model Articles for companies formed before 1 October 2009 (Table A) A model set of Articles for a company limited by shares is set out in Table A in the Companies (Tables A to F) Regulations This model was amended to reflect certain provisions of the Companies Act 2006 by the Companies (Tables A to F) (Amendment) Regulations 2007 The 1985 model Articles were designed to apply to both public and private limited companies with the result that many of the provisions were unnecessarily burdensome for smaller private companies in particular. As we shall see, it was common for smaller private companies to exclude or vary many of the provisions of Table A. A company has three options To adopt Table A in its entirety To ignore Table A completely and have a full set of unique Articles To adopt Table A as the basis for its Articles with amendments to meet its particular needs. The last option was by far the most common for private companies. See the sample Articles in Appendix 2 for an example of this. A company which did not register Articles had Table A as its articles by default. For companies formed before 1st October 2007, the 1985 version applied; for those formed between 1st October and 30th September 2009, the 2007 version applied Some companies are still using the model Articles prescribed by the Companies Act It is open to companies to choose to adopt new Articles which may be based on the latest model. The provisions of Table A are referred to as regulations. 3.2 Model articles for companies formed on or after 1st October 2009 New model articles have been introduced by SI2008/3229. The Companies (Model Articles) Regulations Whereas the 1985 Table A was one model which could be adapted to suit the type of company being formed, there are now 3 sets of model Articles recognising the 3 most common types of company that might be formed, namely: Private company limited by shares ( PCLS ) Private company limited by guarantee ( CLG ) Public limited company ( PLC ) Page 9 of 23

10 To give a broad flavour of the different models: As compared with Table A, the PCLS Articles are simpler, are worded in more modern language, only provide for matters usually relevant to a small private company and generally do not repeat what is in the Companies Act 2006 The CLG Articles are very similar to the PCLS model, but have no provisions on shares or share capital because a CLG cannot be formed on the basis of having shares The PLC Articles are a combination of Table A and the PCLS Articles, reflecting the differences in size and complexity between a small private company and a plc 3.3 Key provisions of Table A and the PCLS equivalent Directors There are two ways in which a director can be appointed under Table A. Regulation 76 allows for a director to be appointed by a resolution of the board of directors; however, a person so appointed must stand for re-election by shareholders at the next following annual general meeting. Regulation 78 provides for directors to be appointed by an ordinary resolution of shareholders (a resolution that requires a simple majority of votes in favour in order to be passed). If a director is to be appointed by shareholders, certain information must be circulated in relation to him or her in advance of the meeting at which the resolution is to be proposed. This will include his or her name and address and details of other directorships held. PCLS 17 simplifies this and allows for an appointment by the board of directors to be ongoing rather than requiring a reelection by shareholders Table A also includes provisions for one third of the directors to resign every year on a rotational basis and, if desired, to stand for re-election by shareholders. These provisions are primarily found in Regulations They are appropriate for larger companies where not all shareholders are on the board. The purpose of them is to give shareholders an opportunity to express their disapproval by choosing not to re-elect a director. They are not appropriate for smaller companies where all or many of the shareholders are also directors. Rather than go through the process of having directors resign and then stand for re-election, many private companies choose to disapply these regulations. See Article 8.1 of the Articles in Appendix 2. PCLS has no requirement for retirement by rotation Page 10 of 23

11 Regulation 89 states that the quorum at board meetings is two. The quorum is the minimum number of directors that must be present at the meeting in order for business to be validly transacted. PCLS have a similar effect Regulation 88 states that, in the event of the same number of votes having been cast for and against a board resolution, the chairman of the meeting is to have a second, casting vote which will enable him or her to decide the matter. This is a means of resolving a potential deadlock. However, a consequence of this is that it makes the Chairman very powerful, particularly if there are only two directors. For this reason, this is another provision of Table A that is often disapplied by smaller companies. See Article 11.1 of the Articles in Appendix 2. PCLS 13 has similar effect As we shall see in Unit 3, directors have a legal obligation to declare any personal interests that they may have in contracts or arrangements with the company; for example, if the company is proposing to enter into a contract with another company in which a director holds shares. Even when a director has declared such a personal interest, Regulation 94 of Table A prevents him or her from counting in the quorum, and Regulation 95 prevents him or her from voting. This could cause difficulties in a small company; if there are only two directors and one is prevented from counting in the quorum and voting then the business cannot be transacted. The provisions of Regulations 94 and 95 are therefore often disapplied by smaller companies see Article 10 of the Articles in Appendix 2. Importantly, it is not possible to contract out of the obligation to declare personal interests. PCLS 14 has similar effect Shareholders and Shares Table A also contains similar provisions regarding quorum at shareholders meetings ( general meetings ) to those at board meetings. Regulation 40 states that the quorum at shareholders meetings is two. This is now stated in section 318 CA Regulation 50 states that, in the event of the same number of votes having been cast for and against a shareholders resolution, the chairman of the meeting is to have a second, casting vote which will enable him or her to decide the matter. Page 11 of 23

12 Again, the Chairman s casting vote at shareholders meetings is another provision of Table A that is often disapplied by smaller companies. See Article 6.3 of the Articles in Appendix 2. For companies formed before 1st October 2007, regulation 50 remains valid and effective. For companies formed on or after 1st October 2007, the chairman of a general meeting cannot have a casting vote because an ordinary resolution can only be passed by a majority vote of the members. There is therefore no such provision in the PCLS articles Table A gives directors only limited powers to refuse to register a transfer of shares. Regulation 24 begins: The directors may refuse to register the transfer of a share which is not fully paid to a person of whom they do not approve.. The key words here are which is not fully paid. It is possible for companies to issue shares that are initially not fully paid for. For example, if a company s shares have a value of 1 each, the company might require a shareholder to pay 50 pence initially and the remaining 50 pence at a future date. If a shareholder attempted to transfer these shares before the second instalment had been paid, the directors could refuse to accept the transferee as the new shareholder. However, it is far more common for private companies to require payment in full when the shares are issued. If the shares have been fully paid for, Regulation 24 of Table A does not entitle the directors to refuse to accept a transferee as a shareholder. This might result in a new person being introduced into the company against the wishes of the remaining shareholders and directors who might prefer to have a choice as to their new colleague. It is therefore common for the Articles of smaller private companies to replace Regulation 24 with alternative provisions. Article 5 of the Articles in Appendix 2 provides that both directors must agree to register a transfer of shares and this will apply to shares that are paid for in full or in part. As we shall see in Unit 4, there are other provisions that can be included in relation to the transfer of shares. The PCLS Articles take a different approach. There are no provisions relating to partly-paid shares PCLS 21 is headed All shares to be fully paid-up (although the subscribers shares are made an exception to this). PCLS 26 provides power for the directors to refuse to register the transfer of a share, thus extending the Table A position which is restricted to partly-paid shares Page 12 of 23

13 Task 5: Find the five sets of model articles described above (1985 Table A; 2007 Table A; 2009 model articles for PCLS, CLG and PLC) and have a quick read through to become acquainted with them. Then answer the questions in Appendix 3, referring back to the relevant model articles. 4. Shareholders Agreements 4.1 What is a Shareholders Agreement? In many private companies, the members enter into a Shareholders Agreement containing terms which (like the Articles of the company) are contractually binding on them. Whereas the Articles are a public document which is binding on all members of the company, a Shareholders Agreement is a private agreement between those shareholders who choose to sign up to it. Sometimes the company itself is also a party. Anyone who chooses not to sign up will not be bound by it, Task 6: Read the help-sheet called Shareholders Agreement on Why have a Shareholders Agreement? The main reason for having a Shareholders Agreement is that it enables the parties to make a private agreement as to how the company will be run in certain respects. Generally speaking, Shareholders Agreements do not have to be registered at Companies House. However, it is important to be aware of the provisions of sections 29 and 30 of the Companies Act 2006 which provide that agreements made by all members of a company must be registered if they concern a matter which would otherwise only have been effective if passed by a particular type of resolution of shareholders. This will be considered in more detail in Units 4 and 5. It is easier for a shareholder to enforce a provision in a Shareholders Agreement rather than a provision in the Articles. As we have seen in the introduction to this Unit, the Articles are intended to operate as a contract between the company and its shareholders. However, it can be difficult for a shareholder to force compliance with the Articles if the relevant provision does not directly relate to membership rights. Page 13 of 23

14 For example, in an old case, the Articles provided that a shareholder was to be appointed as the company s solicitor for life. The shareholder concerned tried to enforce this provision using section 33 of the Companies Act 2006 but was unsuccessful because the appointment as a solicitor was nothing to do with his rights as a shareholder in the company. Breach of a provision in a Shareholders Agreement can be enforced by suing the parties involved for breach of contract. There is no such thing as a typical Shareholders Agreement. The provision will depend on the particular circumstances. However, the following provisions are fairly common: An agreement to vote in favour of re-electing a shareholder as a director (remember that in smaller private companies the shareholders are also likely to be directors) An agreement not to attempt to remove a director from office An agreement as to the company s policy regarding the payment of dividends (for example, should a certain percentage of its annual profits be distributed to shareholders by way of dividend?) An agreement not to change the nature of the company s business without the unanimous consent of the parties to the Shareholders Agreement (you will remember from section 2.2 above that the main objects clause can be changed by a special resolution of shareholders). A Shareholders Agreement might also provide that, should a shareholder wish to leave the company, the remaining shareholders (and/or the company itself) must buy his or her shares. Alternatively, this type of arrangement is sometimes contained in a separate agreement called an Option Agreement. The main disadvantage to a Shareholders Agreement is that it will only be enforceable against those people who have agreed to sign up to it, unlike the Articles which bind all shareholders in a company. Remember to log in and attempt the multiple choice questions at Page 14 of 23

15 Appendix 1 Note: This sample relates to a company formed before 1st October 2009 (of which there are over 2 million!). If this company were formed on or after that date, the Memorandum of Association would consist of what follows after Clause 5 i.e. starting with the words WE, the subscribers to this Memorandum of Association, wish to be formed into a company and going to the end of this Appendix (i.e. the subscription ). SAMPLE MEMORANDUM OF ASSOCIATION OF CL TRAINING COMPANY LIMITED THE COMPANIES ACTS 1985 TO 1989 COMPANY LIMITED BY SHARES MEMORANDUM OF ASSOCIATION OF CL TRAINING COMPANY LIMITED 1. The Company s name is CL Training Company Limited. 2. The Company s registered office is to be situated in England and Wales. 3. The objects for which the Company is established are: (a) (b) (c) (d) (e) (f) To carry on business as a general commercial company and, without limitation, to carry on the business of designing, re-designing and advising on both external and internal alterations and improvements to residential and non-residential properties; To carry on the business of designing, re-designing, landscaping, stocking and maintaining gardens and other recreational areas attached to residential and non-residential properties; to design, procure and deal in any materials and components, and to provide and procure any services which may be required for the purposes of the businesses described above, or which may be conveniently or advantageously made or supplied in connection with them; to apply for and take out, purchase or otherwise acquire any designs, trade marks, patents, patent rights or inventions, copyright or secret processes, and to grant licences to use the same; to purchase, lease or otherwise acquire for the purposes of the company any estates, lands, buildings, easements or other interests in real estate and to sell, let, or otherwise dispose of or grant rights over any real property belonging to the company; to sell or dispose of the undertaking or any property or assets of the company for such consideration as may be thought fit, including the share or loan capital or other obligations of any body corporate; Page 15 of 23

16 (g) (h) (i) (j) to guarantee, grant indemnities in respect of, support or secure, whether by personal covenant or by mortgaging or charging all or any part of the undertaking, property and assets (present and future) and uncalled capital of the company or by both such methods, the performance of the contracts or obligations and the repayment or payment of the principal and interest and dividends on any securities or obligations of any company whether having objects or engaged or intending to engage in business similar to those of the company or not, notwithstanding the fact that the company may not receive any consideration or advantage, direct or indirect, from entering into any such guarantee or other arrangement or transaction contemplated; to do all or any of the above things either alone or as a member of a partnership, trading group or consortium, and in any part of the world; to carry on any other activity and do anything of any nature which may seem to the directors capable of being conveniently carried on or done by the company in connection with the above, or may seem to the directors calculated directly or indirectly to benefit the company; to do all such other things as are incidental or which may be considered conducive to the attainment of the above objects or any of them; AND so that the objectives specified in each sub-clause of this clause shall, unless otherwise expressed, be in no way limited or restricted by reference to or inference from the terms of any other sub-clause or the order in which such objects are stated or the name of the company or the nature of any business carried on by the company, but shall be construed in as wide a sense as if each of the said sub-clauses defined the objects of a separate and independent company. 4. The liability of the Members is limited. 5. The Company s share capital is 100,000 divided in to 100,000 shares of 1 each. WE, the subscribers to this Memorandum of Association, wish to be formed into a company pursuant to this Memorandum; and we agree to take the number of shares shown opposite our respective names. Names and Addresses of Subscribers Simon Jessop Donna Hunt Total number of shares taken Number of Shares taken by each Subscriber 20,000 shares 20,000 shares 40,000 shares Page 16 of 23

17 Dated: 30th June 2007 WITNESS to the above signatures: Caroline Lawton Caroline Lawton 100, Fetter Lane London EC4 1LX Solicitor Page 17 of 23

18 Appendix 2 Note: Like the sample Memorandum in Appendix 1, these sample Articles of Association relate to a company formed before 1st October Provided that the out-of-date references to old legislation were amended, these Articles could be adopted by a company formed on or after that date there are few limitations on the promoters freedom to choose their company s Articles. Where these Articles are affected by changes in the law, a note has been include to explain the point Sample Articles of Association of CL Training Company Limited THE COMPANIES ACTS 1985 TO 1989 COMPANY LIMITED BY SHARES ARTICLES OF ASSOCIATION OF CL TRAINING COMPANY LIMITED 1. PRELIMINARY AND INTERPRETATION 1.1 The regulations contained in Table A ( Table A ) in the Schedule to the Companies (Tables A to F) Regulations 1985 (as amended) shall apply to the Company save insofar as they are excluded or varied hereby. 1.2 Unless the context otherwise requires, words or expressions contained in these regulations and in the regulations of Table A that apply to the Company bear the same meaning as in the Companies Act 1985 ( the Act ) but excluding any statutory modification thereof not in force when these regulations become binding on the Company. 1.3 The heading in these regulations are for convenience only and shall be ignored in construing the language or meaning of the Articles. Regulation 1 of Table A shall not apply. 2. PRIVATE COMPANY The Company is a private company within the meaning of Section 1 of the Act and accordingly no shares in or 1 debentures of the Company shall be offered to the public (whether for cash or otherwise) and the Company shall not allot or agree to allot (whether for cash or otherwise) any shares in or debentures of the Company with a view to all or any of those shares or debentures being offered for sale to the public. 1 A debenture is an agreement entered into by a company in favour of a person who has lent it money. It is likely to provide for the payment of interest on the debt and the provision of security over the company s assets. Page 18 of 23

19 3. SHARE CAPITAL 4. LIEN Subject to the provisions of the Act any shares may be issued which are to be 2 redeemed or are liable to be redeemed at the option of the Company or the holder of such shares on such terms and in such manner as may be provided by the Articles or as the Company may by resolution determine. Regulation 3 of Table A shall not apply. The Company shall have a first and paramount 3 lien on every share (whether or not it is a fully paid share) for all moneys (whether presently payable or not) called or payable at a fixed time in respect of that share, and the Company shall also have a first and paramount lien on all shares (whether fully paid or not) standing registered in the name of any person for all moneys presently payable by him or his estate to the Company (whether he shall be the sole registered holder thereof or shall be one of several joint holders) but the Directors may at any time declare any share to be wholly or part exempt from the provisions of this Article. The Company s lien, if any, on a share shall extend to all dividends payable thereon. Regulation 8 of Table A shall not apply. 5. TRANSFER OF SHARES No transfer of any share shall be registered unless both Directors resolve to register such transfer. Each Director shall have an absolute discretion to refuse to register a transfer and shall not be obliged to give any reasons for such refusal. [Note that section 771 CA 06 entitles the applicant for registration of the share transfer to receive reasons for any refusal to register this over-rides the above article.] No share shall be transferred to any infant, bankrupt or person of unsound mind Regulation 24 of Table A shall not apply. 6. GENERAL MEETINGS 6.1 Regulation 38 of Table A shall not apply. 6.2 A poll may be demanded at any General Meeting by the Chair or by any member present in person or by a proxy and entitled to vote. Regulation 46 of Table A shall be modified accordingly. 2 3 redeemed means bought back. A lien is a right over another person s property to protect a debt owed in relation to that property. In this instance, the company will have certain rights over shares if a shareholder owes the company money in relation to those shares Page 19 of 23

20 6.3 The Chair of a General Meeting shall not have a second or casting vote. Regulation 50 of Table A shall not apply. [Note that Regulation 50 remains valid and effective for pre-october 2007 companies and may call for exclusion; for companies formed on or after 1 October 2007, there cannot be a casting vote for the chairman.] 7. NUMBER OF DIRECTORS The minimum and maximum number of Directors shall be two. Regulation 64 of Table A shall not apply. 8. APPOINTMENT AND RETIREMENT OF DIRECTORS 8.1 The Directors of the Company shall not retire by rotation and Regulations 73 to 77 (inclusive) shall not apply and Regulation 78 shall be modified accordingly. 8.2 The Directors shall have power at any time and from time to time to appoint any other person to be a Director of the Company to fill a casual vacancy. Subject to sub-article 9.1 and subject to the Act a Director may be appointed under this Article to hold office for life or any other period or upon such terms in respect of retirement as the Directors shall at the time of such appointment determine. Regulation 79 of Table A shall not apply. [Note that the contents of this Regulation were largely attributable to the 1985 Act s requirement that the company held an Annual General Meeting; there is no such requirement for private companies in the 2006 Act] 9. DISQUALIFICATION AND REMOVAL OF DIRECTORS 9.1 The office of Director shall be vacated if the holder: ceases to be a Director by virtue of any provision of the Act or becomes prohibited by law from being a Director; or becomes bankrupt or makes any arrangement or composition with creditors generally; or is a person of unsound mind; or resigns such office by notice to the Company; or is removed from office under Section 303 of the Act; and Regulation 81 of Table A shall not apply. 10. DIRECTORS INTERESTS Provided that a Director declares his interest in a contract or arrangement or proposed contract or arrangement with the Company in the manner provided by Section 317 of the Act, he shall be counted in the quorum of any meeting of Directors at which the same is considered and shall be entitled to vote as a Director in respect thereof. Regulations 94 and 95 of Table A shall not apply. Page 20 of 23

21 11. PROCEEDINGS OF DIRECTORS 11.1 The Chair of a meeting of the Directors shall not have a second or casting vote and Regulation 88 of Table A shall be modified accordingly The quorum for the transaction of the business of the Directors shall be two. Regulation 89 of Table A shall not apply. 12. NOTICES 12.1 Any notice given to or by any person pursuant to the Articles shall be in writing except that notice calling a meeting of the Directors need not be in writing. Any notice may be given to the Company by leaving the same or by sending the same by post to the registered office or such other place as the Directors may appoint. Regulation 111 of Table A shall not apply Proof that an envelope contained a notice was properly addressed, prepaid and posted shall be conclusive evidence that the notice was given. A notice shall be deemed to be given at the expiration of 24 hours after the envelope containing it was posted. Regulation 115 of Table A shall not apply. 13. INDEMNITY In addition to the indemnity contained in Regulation 118 of Table A and subject to the provisions of Section 310 of the Act, every Director, Managing Director, agent, auditor, secretary and other officer of the Company shall be entitled to be indemnified out of the assets of the Company against all losses or liabilities incurred by his in or about the execution of and discharge of the duties of his office. Names and Addresses of Subscribers Number of Shares taken by each Subscriber Simon Jessop 20,000 shares Donna Hunt 20,000 shares Total number of shares taken 40,000 shares Page 21 of 23

22 Dated: 30th June 2007 WITNESS to the above signatures: Caroline Lawton Caroline Lawton 100, Fetter Lane London EC4 1LX Solicitor Page 22 of 23

23 QUESTIONS ON MODEL ARTICLES Appendix 3 1. Where the 1985 Table A applies, how much notice must be given of an annual general meeting of shareholders? How does the answer differ where the PCLS Articles apply? 2. If a notice is posted to a shareholder, when will it be deemed to have arrived? The answer is the same in all cases. 3. What will happen if a quorum is not present within half an hour of the expected start of a shareholders meeting? Broadly, the answer is the same in all cases. 4. Where the 1985 Table A applies, how many votes will a shareholder have on a poll vote? What do you think is the reason why there is no equivalent provision in the PCLS Articles? 5. Who can demand a poll vote and when must the demand be made? Broadly, the answer is the same in all cases. 6. What is a proxy? Regarding the circumstances in which a proxy can vote, in what way does provision in Part 13 of the Companies Act 2006 differ from regulation 54 of the 1985 Table A? 7. Who appoints the chairman of the Board of Directors? Broadly, the answer is the same in all cases. 8. Which Regulation or article contains the authority for the directors to manage the business of the company? 9. What is an alternate director? In this respect, how do the PCLS articles differ from the PLC articles? 10. Can a company purchase its own shares? Leaving aside for the moment CLG, your answer will be the same for all companies, but the source of your answer is different. Why? In what way is a CLG fundamentally different on this question? Page 23 of 23