Jonathan Djanogly (Shadow Solicitor General (Also Shadow Minister for Trade and Industry), Law Officers (Assist the Home Affairs Team); Huntingdon, Conservative)

I beg to move amendment No. 3, in clause 10, page 5, line 2, leave out subsection (1) and insert—

‘(1) The articles of association of a company on its incorporation shall contain a statement, which must comply with this section.'.

The clause relates to sections 2(5)(a) and (c), 6 and (6A) of the Companies Act 1985 and effectively accepts a recommendation by the company law review to abolish the requirement on a company to have an authorised share capital. In future, the memorandum will contain only a limited amount of information on a company’s founder members—the subscribers to the memorandum. Information about the shares subscribed for by them, which is currently set out in the memorandum itself, will in future be provided to the registrar in the form of two statements made inthe application for registration—one of initial shareholders, and one of share capital.

The statement of initial shareholdings must contain the names and addresses of the subscribers to the memorandum. In all cases, the requirement is for a contact address. House of Lords amendments took issue over the point at which names and addresses of initial shareholders of a company should first be published. The Bill required that to be at the point of formation, but the amendments would require it to be at the time of the first annual return.

My noble Friends argued that it was better to have a later declaration when it was more meaningful than one at the formation of the company, as the Government argued, when individuals were often essentially nominees. We do not intend to review that debate. However, to return to an earlier point, why is there the need for a separate form? We think that the Bill should be about limiting forms to the bare minimum.

In any event, newly formed companies will often include in their articles details of the share capital on incorporation. So making that compulsory and removing the form would be uncontroversial. That form might be linked to the implementation of the EU second company law directive 77/91/EC, but I do not see why that could not be complied with by using the articles to provide the information, rather than another form.

Margaret Hodge (Minister of State (Industry and the Regions), Department of Trade and Industry; Barking, Labour)

It is important that we consider clause 10 against the background of other provisions, particularly those in part 19 on share capital, which requires certain types of company to provide an updated statement of subscribed capital whenever the subscribed capital changes. The statement required in clause 10 is essentially a snapshot taken at the time of the formation of the company, as the hon. Gentleman said. It is likely to be superseded over time by further statements of the same sort—for example, if new shares are allotted or the company’s share capital is reorganised. The question then becomes where those statements should appear. The choice seems to be among the memorandum, the articles or, as the Bill provides, a separate statement. I shall explain why we believe that a separate statement is the right approach.

As we have discussed, the memorandum will contain nothing other than the historical information. As the statement of capital will change over time, that does not appear to be the appropriate place in which to put the statement. On the face of it, as the hon. Gentleman said, using the articles makes more sense. I can see why he is attracted to the logic of that argument. Articles contain information of ongoing relevance about the company and may, on occasion, need to be updated.

However, there is a requirement in the law that whenever any element of the articles is changed, a full new and updated copy of the articles has to be produced and filed with Companies House. That requirement is sensible, ensuring that those who need to consult the articles will never need to look in more than one place to understand all the provisions contained in them, but the implications could be onerous if the statement of capital was involved. Some companies may well change their subscribed capital frequently, and certainly more frequently than we would expect them to change other elements of their articles. It would be excessive to require them to produce a fully revised new set of articles every time they changed their share capital.

We have taken a pragmatic approach. The Bill provides for the statement to be an independent element of information that will appear separately on the Companies House register and which will be easier to identify by searchers of the register.

Jonathan Djanogly (Shadow Solicitor General (Also Shadow Minister for Trade and Industry), Law Officers (Assist the Home Affairs Team); Huntingdon, Conservative)

I agree with the Minister. On an ongoing basis, it would be very onerous for most companies to have to refile their articles every time they changed their share capital, although manylarge companies do exactly that. However, I thought that we were discussing the statement of initial shareholdings—the shareholdings that the company is incorporated with—rather than the position on an ongoing basis. I appreciate that there might have to be a form on an ongoing basis, but that should not have to be the case on day one.

Margaret Hodge (Minister of State (Industry and the Regions), Department of Trade and Industry; Barking, Labour)

If the statement of initial shareholdings were incorporated into the articles of association, which I think is what the hon. Gentleman is talking about, it would become an integral part of the articles of association, so any change to them would mean that all the articles would have to be changed. We propose a separate statement.

Jonathan Djanogly (Shadow Solicitor General (Also Shadow Minister for Trade and Industry), Law Officers (Assist the Home Affairs Team); Huntingdon, Conservative)

The practice of most companies that put their initial share capital into the articles is that the first time they change them, they remove it at that point, so rather than being an ongoing obligation, it would probably be a one-off when the company was recapitalised for the first time.

Margaret Hodge (Minister of State (Industry and the Regions), Department of Trade and Industry; Barking, Labour)

I think that that would of itself become extremely bureaucratic and the statement of share capital could well be out of date on day one after the company was incorporated. Having a separate statement from the beginning is clearer. There may be variants of view on that, but we believe that it will be simpler to update the statement if it is separate, not least if the company chooses to use electronic means to do so. I hope that, having had that little exchange, the hon. Gentleman will withdraw the amendment.

Jonathan Djanogly (Shadow Solicitor General (Also Shadow Minister for Trade and Industry), Law Officers (Assist the Home Affairs Team); Huntingdon, Conservative)

I hear what the Minister says and this is not the sort of provision that anyone should want to die in a ditch over. On that basis, I beg to ask leave to withdraw the amendment.