LOOKING at your company constitution (the memorandum and articles of association) is not the most exciting of tasks to undertake in difficult times, and why does it matter anyway?

No company has to change its constitution simply because the updated Companies Act 2006 is now fully in force, so why incur the cost?

Most companies only really look at their constitution when they are thinking about a particular transaction, like buying a property or selling part of the business, or if there is a dispute between shareholders and directors and people are looking for ammunition.

But updating your company constitution now can bring real benefits.

If you are a director and find it difficult to hold board meetings because your fellow directors are always on the road, the updated Companies legislation can allow directors to agree things by text message without the need for a meeting or unanimous formal written agreement. Many current constitutions do not allow for this.

If you need to communicate with your shareholders, under the new law virtually all shareholder meetings only need 14 days’ notice, but you will be stuck with longer notice periods if that’s what your constitution says.

To save company running costs, there is much more scope under the new law to communicate electronically with shareholders and others, but this could be limited by your current constitution.

And have you ever felt an annual meeting was an unnecessary formality?

There’s no need to have one if you’ve removed all AGM references from the constitution. Much else has changed in company law over the last five years.

A modern constitution can allow the company’s board to authorise a director’s conflict of interest, rather than referring this to the shareholders, so saving time and cost. A company can also extend the protection it gives directors.

A company constitution based on the old law will inevitably contain provisions which conflict with the new law, which are no longer relevant or are misleading.

Unknowingly, decisions could be made which are ineffective or which break the new law, something which then comes to light when the company is facing an important decision.

It may be better to avoid that by incurring the small expense involved in updating the constitution now, rather than the larger expense of a dispute later.

■ David Lucas is a Partner in the Company Law team at BHP Law. Contact him on 01642-672770.