The Companies Act
The Companies Act was finally given Royal Assent on 8 November 2006, it consists of a mammoth 1,300 sections, and at 760 pages it is the most substantial Act of Parliament to date relating to company law.
Kevin Cunningham, a corporate partner at national law firm Irwin Mitchell, is warning businesses to look at their procedures now to make sure they comply with the new business regulations.
There are rafts of changes brought in by the Companies Act. A small number of changes came in to force on the 1 January 2007. The bulk of the changes will not come in to effect until October 2008 but companies need to be preparing now to make sure they have the time to comply with what is one of the longest pieces of legislation to be passed in the UK.
Kevin warns that the reforms are significant to all those in the company sphere. Some of the noteworthy provisions include:
1. Directors Duties
The Act sets out Directors duties, including six factors which Directors need to consider when making decisions on behalf of the company. Amongst other factors, directors will have to consider the impact of their decisions on the environment and employees.
2. Company Secretary
For private companies, the need to have a company secretary is abolished. However, the duties which are currently carried on by the company secretary (e.g. maintaining statutory books, making filings at Companies House and taking minutes of meetings) remain.
3. Financial Assistance
The ban on a private company giving financial assistance for the purchase of its own shares is abolished. The ban in relation to public companies remains intact.
4. Memorandum of Association and Objects Clause
The Act still requires individuals who wish to form a company to subscribe to a memorandum of association (one of a number of documents required to set up a UK company). However, the memorandum will only contain details of the initial subscribers. Matters which are currently required in the memorandum will to a large extent be dealt with in the Articles of Association (this document sets out the rules for the running of the company's internal affairs).
Under current law, a company is required to state its objects in its Memorandum and its directors are required to ensure that the company only acts within its objects. Under the new Act, there will be no such requirement. A company's objects will be unrestricted unless specifically restricted in the Articles.
5. Annual General Meeting
There is no longer a requirement for a private company to hold an Annual General Meeting, unless provided for (directly or indirectly) in its Articles.
6. Authorised Share Capital
The requirement for a company to have an authorised share capital is removed. If a company's Articles do not restrict the number of shares which can be issued, the only manner in which the shareholders can control this is by passing a special resolution to amend the Articles.
7. Notice of General Meetings
The notice period for all general (i.e. shareholder) meetings will be 14 days, regardless of the type of resolution to be passed. The only exception is in the case of an AGM of a public company, for which the notice period will continue to be 21 clear days. Under current law, 21 days notice is required for a general meeting where a special resolution is to be proposed.
8. Written Resolutions
Whereas previously unanimous approval was required for a private company to pass a resolution by way of written resolution, under the new Act private companies will be able to pass an ordinary resolution by way of written resolution with only a simple majority of those eligible to vote and a special resolution by written resolution with a majority of 75% of those eligible to vote.
Auditors will be given the ability to limit their liability by way of agreement with the company in question. However, such agreements will not be effective unless they are fair and reasonable.
10. Provision of Information in Electronic Communications
Companies are required to state the company's name, place of registration, registered office and registered company number on their website. This requirement also applies to order forms and emails. Please note that this provision is already in force due to regulations passed in December 2006 and companies therefore need to ensure that they amend their website, email footers and order forms immediately if they have not already done so.
Kevin warns, that it is essential that companies consider what updates they may need to make to their practices, procedures and company documentation in order that they are fully prepared for when the Act comes in to force.
If you would like to discuss your company's requirements further, please telephone Kevin Cunningham on 0870 1500100.