Need to know:
The Companies Act was finally given Royal Assent to become law 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 law firm Irwin Mitchell, is warning businesses to look at their procedures to make sure they comply with the new business regulations.
‘There are rafts of changes brought in by the Companies Act,’ says Cunningham, ‘A small number of changes came into force on the 1 January 2007. The bulk of the changes will not come into effect until October 2008 but companies need to be preparing now to make sure they have time to comply with what is one of the longest pieces of legislation to be passed in the UK.’
SmallBusiness.co.uk and Irwin Mitchell would like to draw your attention to the following points of interest in the Act, so you can keep ahead of the changes and stay legal:
1. Directors’ Duties – The Act sets out directors’ duties, including six factors that directors need to consider when making decisions on behalf of the company. In deciding how to promote the success of the company, directors are required to consider:
- the likely long-term consequences of their decisions
- the interests of the company’s employees
- the need to foster the company’s business relationships with suppliers, customers and others
- the impact of the company’s operations on the community and the environment
- the desirability of maintaining a reputation for high standards of business conduct
- the need to act fairly between members of the company.
2. Company Secretary – For private companies, the need to have a company secretary will be abolished – a change likely to be implemented on 6 April 2008. However, the duties currently carried out 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 to be 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 that are currently required in the memorandum will to a large extent be dealt with in the ‘Articles of Association’ (a document that sets out the rules for running 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 that 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, under the new Act private companies will be able to pass an ordinary resolution with only a simple majority of those eligible to vote and a special resolution with a majority of 75 per cent of those eligible to vote.
9. Auditors – 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. 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.
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.
To visit the .gov.uk website for more information, click here
Click here for information on changes in business legislation.