Provisions of the Act

1. Introduction

Here is a brief overview of the Companies Act 2006.

Please note that only the private company aspects to the Act have been reviewed - the public and quoted company provisions are not covered.

The overview is split into the following areas

Key principles

The legislation is drafted on a "Think Small Company First" principle. It therefore uses simpler language than before and removes the private company from a number of procedures and regulations.

However, for public companies the detail in the current legislation remains, and further provisions have been added to reflect various European Directives, including provisions relating to takeovers and disclosure of information, and to promote communication between the company and its shareholders. This is to promote the concept of enlightened shareholder value.

E-communications are also facilitated by this Act, with provisions which allow companies to communicate with their shareholders via email or websites.

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Formation

  1. Private companies can be formed by one person. There is no need to appoint a company secretary (although his duties will remain), and one person may be both director and shareholder.
  2. There will be one constitutional document on formation. The memorandum is replaced by a much shorter document saying that the members wish to form a company and agree to take at least one
  3. The information to be provided on formation differs to that currently provided. Authorised share capital is abolished and a statement of capital and initial shareholdings will be submitted to Companies House on formation. Form 10 will therefore change accordingly.
  4. Form 12 (the statutory declaration on formation) will be replaced by a "statement of compliance".
  5. Corporate directors may not be appointed unless there is also a natural person acting as a director.
  6. Any director is obliged to register a service address at Companies House as well as a residential address. The service address, which may be the company's registered office, will be public, and the residential address will be held confidential unless it becomes impossible to communicate with the director via his service address.
  7. Details of any person appointed as an authorised signatory must also produced on formation.
  8. Provisions have been included to prevent company names being registered to exploit a third party's goodwill in a name and to prevent the registration of too similar names.

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Company administration

  1. Private companies need not appoint a secretary. There is a provision in the Act that says that anything that is required to be done by or to the secretary may be done by or to a director or by or to a person authorised by the director in that behalf.
  2. However, the duties currently carried out by the company secretary remain, such as the obligation to maintain a register of members, register of directors and register of charges. In addition two new registers are created: the register of director's residential addresses and the register of authorised signatures. There is clarification that records and registers may be kept in electronic form.
  3. The obligation to file an annual return remains.
  4. A private company is not required to hold an annual general meeting.
  5. More flexibility has been introduced to enable the company to set the level of shareholder approval necessary to change its name.
  6. The register of members must now be kept for 10 years instead of 20 years. Board minutes must be kept for at least 10 years.
  7. The Secretary of State has power, by secondary legislation, to make rules relating to the disclosure and display of company information in certain locations or in certain company communications. The intention is to align the disclosure requirements in the Companies Act 1985 and the Business Names Act 1985.
  8. There are provisions in the Act for shareholders and companies to consent to dealing with each other electronically rather than in hard copy format.

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Shares and share issues

  1. A private company with only one class of shares may allot shares without shareholder authority, unless its articles provide otherwise.
  2. It will be easier to allot redeemable shares.
  3. Shares may be issued direct to bearer without first being issued in registered form.
  4. The prohibition on a private company offering shares to the public remains, but the criminal penalty is removed and replaced by penalties that will require the company to re-register as a public company or to be struck off.
  5. Shares may be denominated in any currency but must always have a par value.

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Directors

  1. With a view to ensuring that there is one adult individual responsible for the company's actions, children under 16 may not be appointed as directors and companies may not act as the sole director.
  2. A statutory code of directors' duties has been introduced.
  3. The various provisions in the Companies Act 1985 relating to disclosure and approval of transactions with directors have been revised and restated.
  4. The section 303 director removal provisions have been restated and amended.
  5. There is a new section relating to ratification of directors' acts by shareholders, but this does not affect any provision of law that provides that a particular act or omission may not be ratified.

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Articles of association

  1. Standard form articles for private companies limited by shares, public companies and private companies limited by guarantee will be produced which will apply in default of amendment.
  2. It will not be possible to irreversably entrench provisions into the articles. For example, the provision found in guarantee company articles that prohibit profit distributions. Entrenched provisions may be removed or amended if all of the members agree.

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Meetings and resolutions

  1. The majority necessary to consent to short notice has changed from 95% to 90%.
  2. The shareholder written resolution procedure has been changed, so that written resolution are passed with the signature of the appropriate percentage of members, rather than by unanimity. In addition if consent to the passing of the resolution is not obtained within 28 days of the circulation date, the resolution lapses.
  3. The provisions regarding calling and notice of meetings, appointments of proxy and corporate representatives, quorums and polls have all been restated and revised.

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Corporate procedures

Various corporate procedures are affected, as follows:

  1. The prohibition on financial assistance is abolished for private companies, unless it is a wholly owned subsidiary of a public company.
  2. The reduction of share capital procedure is simplified with creditors being protected through a declaration of solvency made by the directors, rather than by a court process.
  3. The re-registration procedures (private to public and vice versa) are revised and restated.
  4. There is a new procedure to make it easier to redesignate the currency of issued share capital.
  5. Public companies may take advantage of the voluntary strike off procedures in the Companies Act 1985.
  6. Changes will be made, by secondary legislation, to align the "place of business" and "branch" registration provisions, to simplify the rules applicable to offshore companies.
  7. Changes are made to the purchase of own shares provisions.
  8. There are new sections relating to the bringing of derivative actions by shareholders (ie where a shareholder brings a claim alleging that the company has suffered loss and therefore his share value has suffered loss). Under the current law it is difficult for shareholders to bring such actions if the company decides not to take action itself (for example, if the loss is caused by the directors). Under the Bill, shareholders will be able to take action against the directors for breach of duty or trust or negligence for a loss suffered by the company, even if the director was appointed before they became a member.

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Accounts and Auditors

  1. The existing accounting provisions have been re-drafted to bring all relevant provisions for small companies together in one part of the Act, and all provisions for public and quoted companies together, to make it easier to find the provisions. However, there is little change of substance.
  2. The accounts filing date for a private company is shortened to 9 months after the end of the relevant accounting reference period.
  3. The Act contains provisions which will allow auditors to limit their liability to the company by contract.
  4. The Act also creates a new offence for an auditor to knowingly or recklessly issue an audit report which is misleading or false in a material particular. This offence is punishable by a fine rather than a prison sentence.

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Companies House

The Registrar is given greater powers to correct and amend information on the public register.

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