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The Companies Act 2006
Important changes for private companies
Background
Following a complete overhaul of UK Company law, the Companies Act 2006 (the ‘Act’) the largest piece of legislation passed by Parliament, was given royal assent in November 2006. The Act is a mixture of reform and restatement of company law and as such replaces substantially all of the Companies Act 1985.
Certain provisions of the Act have already come into force, the remaining being phased in by October 2009. We will not attempt to identify and comment on all of the reforms and changes to the law but to simply give an overview of the practical implications of certain important issues contained in the new Act, which may be of relevance to you.
Deregulation
One of the principle aims of the new Act is to provide a simplified framework in which companies, in particular small private companies, can operate by making the incorporation and management of companies easier and more flexible. Some of the key changes in this area include:
AGMs
Private companies are no longer required to hold an AGM unless their articles of association expressly state that they should. This means that a private company is no longer obliged to lay its accounts and reports before members in general meeting or formally appoint auditors on an annual basis at an AGM.
For those private companies whose articles state that an AGM must be held but which have, prior to October 2008, passed an elective resolution to dispense with the holding of an AGM, the Act provides that these companies will not need to hold an AGM under the new rules, even though the concept of the elective regime no longer exists under the new legislation. A check of the resolutions filed at Companies House should reveal whether or not such an elective resolution has previously been passed.
Company secretary
Private companies are no longer required to have a company secretary but may choose to retain one. However, if a company’s articles of association expressly state that the company
must have a secretary, any such requirement will continue to apply unless the necessary steps are taken to amend the articles. Note, however, that the duties normally undertaken by the company secretary will still need to be carried out by another officer of the company or authorised person e.g. maintaining the statutory registers or ensuring that all relevant matters are properly filed. We can quickly check your articles to see whether your company can take advantage of this change in the law.
Share capital
With effect from 1 October 2009, the Act abolishes the requirement for companies to have an authorised share capital and a private company with only one class of shares will not need shareholder authority to allot shares unless its articles expressly states that this is a requirement. In addition, shares may be allotted without complying with the statutory pre-emption requirements (i.e. allotting shares on a pro rata basis) where shareholders have authorised this by special resolution or where there is an express authority in the articles.
Financial assistance
The prohibition on a private company giving financial assistance for the purchase of its shares, together with the sometimes costly and time-consuming “whitewash” procedure, will be repealed with effect from 1 October 2008. Although there may be circumstances whereby a company is still prohibited from assisting in the purchase of its own shares, this deregulatory measure has been welcomed as it will now enable companies to enter into transactions which, under the Companies Act 1985 would have been considered unlawful. However, directors will still need to observe their general duties when approving arrangements which might currently constitute financial assistance.
Reductions of share capital
From 1 October 2008 there will be a new solvency statement procedure which will enable private companies to reduce their capital without the need to obtain Court approval. This will be of particular relevance to those companies which, for example, wish to create distributable reserves or eliminate a deficit on their profit and loss account and for which the Court procedure would have been problematic or indeed expensive.
Shareholder meetings and resolutions
New rules on written resolutions have been introduced which enable private companies to pass written ordinary resolutions by a simple majority of those eligible to vote and written special resolutions with a 75% majority rather than requiring unanimity for all types of resolution as was the case under the 1985 Act.
Note, however, that a resolution to remove a director or auditor before the expiration of his term cannot be passed by written resolution and all communications relating to the resolution must be sent to the company’s auditors.
The notice period for all company meetings will generally be 14 days subject to any contrary provisions in the articles of association.
As a result of the deregulatory changes introduced under the Act, the elective regime (i.e. the regime adopted by many private companies dispensing with the need to hold an AGM, to formally appoint auditors and lay accounts before members in general meetings) has effectively become the default regime for private companies (subject of course to any contrary provisions in the company’s articles of association) and as a consequence the elective regime no longer exists under the Act.
Electronic communication
New rules on electronic communication with shareholders have been introduced. These enable the company to communicate with its shareholders electronically, either by email or via its website, provided it has obtained consent from its shareholders and certain procedural steps have been followed authorising communication in this way.
Publication of accounts
The deadline for private companies to file annual accounts and reports has reduced from ten months to nine months. Note that as private companies no longer need to hold an AGM the practical effect of the changes to the legislation means that there is no longer a link between the publication of annual accounts and the holding of an AGM.
A company is still required however to circulate accounts to its members on or before the date on which the accounts must be filed with the Registrar of Companies i.e. within 9 months of the company’s financial year end or, if filed earlier, on or before the actual date of filing.
If a company has taken advantage of the electronic communication provisions in the Act (i.e. has sought the necessary authority from shareholders to communicate with its shareholders electronically – whether by email or via the company’s website), the accounts may be circulated electronically.
Directors
All companies must have at least one director who is a ‘natural person’. As a consequence, those companies which have only a corporate entity as director (often relevant for group companies), will need to appoint a natural person either in addition to, or instead of, the corporate entity. This change is effective from 1 October 2008. However, there is a grace period for companies which had no natural persons as directors as at 8 November 2006 – for these companies, the new section will not apply until 1 October 2010.
Various measures have been implemented to protect against the public disclosure of a director’s home address. As such, from 1 October 2009 a company will need to provide a service address for a director in its register of directors (and on any Form 288 filed with the Registrar of Companies), which could be its registered office address or a director’s home address (although this would not be apparent from the public record). The Act also introduces a requirement for companies to keep a register of the usual residential addresses of its directors (who are individuals) however, this register is not to be open to public inspection. A company will not be able to use or disclose a home address without consent, except in limited circumstances.
Directors’ duties
The implementation of the Act has attracted much publicity in relation to its landmark reforms of directors’ duties and derivative claims (i.e. claims brought by shareholders on behalf of the Company). The Act has in effect “part codified” existing common law and fiduciary duties although the new statutory statement of duties does not cover all the duties that a director may owe to the company. This is a large and complex topic in itself and we have produced a separate note on the subject.
- Make sure you are familiar at least with the broad headings of change and inform your co-directors.
- Consider reviewing your articles to establish whether or not your Company can take advantage of these changes.
- Read our note on the changes to directors’ duties.
- Call us to discuss any matters about which you are unsure.
Boyes Turner
RCR/AXC
September 2008
