Keep it legal: Classes of membership

Many membership organisations have evolved, with separate classes of members benefiting from different rights.

If an organisation is a company limited by guarantee, it could soon be confronted with an additional layer of approvals if it wishes to amend its articles of association because of forthcoming changes brought by the Companies Act 2006.

Under existing law, organisations can amend or cancel the conditions and privileges of a particular class of members only with a special resolution approved by at least 75 per cent of the votes.

The new provisions of the Companies Act say that an organisation will not only need a special resolution of the whole membership, but also separate approvals from each class of members whose rights will be affected by the changes.

Assuming there is nothing in the articles to cover this, the company will either have to call separate class meetings to obtain the approval of at least 75 per cent of those voting, or seek written consent from at least 75 per cent of the members of that class.

These could cause unnecessary complications for many membership organisations, because arranging break-out meetings or separate ballots of different classes of members is costly and time-consuming.

One class could also block the changes, or there could be the prospect of a class of members that normally has no, or limited, voting rights suddenly being given a vote on constitutional changes.

As the implementation of the Companies Act 2006 becomes more drawn out, companies limited by guarantee should make the most of this grace period to review whether they should amend their articles of association.

They might consider whether some of the membership classes need to have constitutional rights or could be recognised and valued in another way as supporters of the organisation.

Alternatively, over-prescriptive catalogues of membership privileges might be removed from the articles of association, although care should be taken that this action does not deprive members of other contractual rights.

- Ian Hempseed is head of the third sector team at Hempsons LLP.

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