Nominet, the company that oversees the register of the .co.uk internet domains, has come under fire from members of its own policy board following a decision to radically change its status.

The not-for-profit company has called an extraordinary general meeting on March 16, where it will seek members' approval for changes to its Memorandum and Articles of Association to enable it to compete in the rapidly changing internet market.

But critics, including several elected members of its Policy Advisory Board, say the changes are an attempt to commercialise the company and introduce "backdoor dividends".

The issue is finely balanced because under existing rules, 90 per cent of votes cast at the EGM will have be in favour of the changes for them to be accepted.

Bob Gilbert, who joined the company as chairman in April last year, has spent much of his time working on reforming the company. He told Times Online: "If you bought a company off the shelf, these provisions would be there as a matter of course. This is so normal."

Lesley Cowley, the chief executive, says that the proposed changes are "there to respond to members' requests for things that technically we are prevented from offering at the moment".

She cites the recent bidding war to run the new .eu internet domains. "There was a push for Nominet to bid for .eu, with lots of people asking us to do it without them realising that we are prevented from doing that. We can't consider working outside the .uk registry without these changes."

Nominet was created in May 1996. In those early days of the expansion of the internet, the companies running large registries such as .com were manipulated by external forces that made a small fortune and then jumped ship. Nominet's founders sought to prevent that from happening by giving members the overwhelming balance of power in company decisions.

But times have changed. In order to change the price that it charges members to buy .uk domains, Nominet is legally obliged to send a letter to all 3,000 members asking their permission. It requires a 75 per cent approval before it can act. The whole process can take up to six months, and it is causing Nominet to slip behind in the fast-moving Internet industry, Ms Cowley warns.

But while it is agreed that historical anomalies should be eliminated from the company's statutes, some members feel the changes proposed go too far.

One opponent, Hazel Pegg, has set up a website - NotNominet - outlining the full changes and the reasons why she believes members should vote against them.

"The real fear is that if Nominet moves too far down the commercial route, especially with dividends, commercial interests could swing things and the registry become less reliable," Ms Pegg said.

"It's not so much about what's happening now as what will happen in future."

The changes proposed will see the board expand to nine members, with three new non-executive directors chosen by the board, alongside the existing three elected non-executives and three executive directors. The board will also be given new powers over pricing and membership.

What Ms Pegg calls "dividends by the backdoor" - namely "discounts" to be given to members at the board's discretion - is no more than a method of spreading the wealth around in good times, according to Ms Cowley.

Fears that relaxing the rules will also allow Nominet to compete with its own members are also groundless, Mr Gilbert says. "It would be commercial suicide," he said. Nominet's targets will the giants of the internet world - VeriSign, Afilias, NeuStar - says Ms Cowley, not its own domain-selling members.

The suggestion that the changes are the first step towards Nominet being taken public were also dismissed by Mr Gilbert. "It could never be possible to float Nominet," he argued. "It is legally impossible."

Nominet will remain a not-for-profit company and that ultimately means its success will also benefit its members, Ms Cowley said.

However, opposition to the changes remains strong and many members have already handed their proxy votes at the EGM to Ms Pegg's group.

Read Hazel Pegg's commentary here

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