01 March 2007
The Companies Act 2006 is the largest and longest piece of legislation ever to be passed in the UK, bringing company law into unison in England, Wales, Scotland and Northern Ireland. According to the government, it will bring major benefits to business by modernising and simplifying existing company law. The Act will clarify and, for the first time, codify directors' duties. It also updates shareholders' rights to take action against the directors if the company is not being run in their best interests. In certain circumstances it will allow shareholders to require companies to disclose information about their suppliers.
Although there is no immediate panic, as the vast bulk of the Act is expected to come into force in October 2008, companies should not only be preparing now, but also be aware that some of the new rules, relating primarily to talk to the experts...electronic communications, are already applicable.
The main practical effect of these is that information requirements for business documents apply equally to electronic versions as well as hard copies.
Have you taken appropriate steps to adhere to the rules that became law in January?
Whether a plc or private limited company, your company name must now appear in all business letters, notices and other official publications. This includes all websites, bills of exchange, promissory notes, cheques, orders, parcels, invoices, receipts or letters of credit, whether printed or in electronic form.
Additionally, all business letters, order forms (whether electronic or not) and websites must include:
• the company's place of registration & registration number
• its registered office address
• if relevant, the fact that it is an investment company
• in the case of a limited company exempt from the obligation to use the word "limited" as part of its name, the fact that it is a limited company.
Companies must also display their VAT number on their website.
Subject to shareholders' approval, email and website are the default modes of communication between a company and its shareholders (with particularly detailed rules for companies whose shares are traded on a regulated market), although individuals have the right to receive paper communications if they prefer. Many listed companies already communicate with shareholders via email and/or website so in practice there may be little change.
And what's coming later?
The key changes that are expected to come into force either later this year and/or 2008 include, for private companies:
• the abolition of the requirement for a company secretary;
• the removal of the need to hold an AGM (except in limited circumstances);
• simplified decision making by written resolution (majority, rather than unanimous, decisions being allowed);
• shorter notice periods for shareholder meetings;
• a business review as part of the annual accounts for all but the smallest private companies;
• the abolition of authorised share capital;
• the simplification and partial abolition of the highly complex rules on private companies providing financial assistance for the acquisition or purchase of their own shares.
For PLCs:
• AGMs must take place within six months of the year end:
• the Directors' Report to the accounts of quoted companies must provide an enhanced business review including environmental matters, social and community issues, company policy and effectiveness in respect of its employees
• shareholders will have the right to question the auditors at the AGM
The following changes will apply to all companies:
• separate, shorter and clearer model Articles of Association and a simplified Memorandum of Association;
• the Directors must include at least one natural person ie companies will no longer be able to have all corporate directors;
• Directors may give a service address, keeping their home address details off the public register if they wish;
• new powers for shareholders to bring actions on behalf of the company against its Directors.
The Act will also demand that directors of companies give consideration to how their decisions affect the best interests of the environment, the community and their suppliers. Many businesses were strongly opposed to the clause that required companies to list suppliers. Some firms were concerned that the lists would make them susceptible to protests from animal rights campaigners, and thus the Act no longer requires directors to list their home address nor does the new law require a full and exhaustive list of suppliers.
Of the many other provisions to be implemented in due course, one of the most important is the statutory codification of directors' duties - to make it easier to understand what is expected of directors (and when they've not met those expectations). Interestingly, the process of prosecution of errant directors has been hit by budget cuts this year and there are suggestions that only the most serious offences will now be pursued.
So, although the Government might be giving the legislative dog more bite, it seems to have removed a number of its teeth!
That said, the Government has estimated that total net savings to companies as a result of company law reform could be around £250m annually. So, as well as making sure you're compliant with the regulations that are already in force, keep an eye on developments to see what else the Companies Act could mean for your business.
B P Collins' team of experienced corporate and commercial lawyers understand that clients expect responsive, pragmatic and commercial solutions. We are committed to building long term relationships that help our clients businesses to grow.
For more information on the impact of the Companies Act on your business, contact Simon Deans on 01753 279022 or simon.deans@bpcollins.co.uk. |
