Legal Updates
COMPANIES ACT 2006
Introduction
On 1 October 2009, the final provisions of the Companies Act 2006 came into effect. The Act consists of 1,300 sections and 16 Schedules and the following is only intended as a summary of some provisions we think might be of immediate interest to private companies.
The Act was drafted on a "Think Small First" principle and so uses simpler language than before, removing the need for a private company to observe and/or comply with a number of procedures and regulations which continue to apply to Public Companies.
Incorporation
- Private companies can be formed by one person and the same person may be sole director and shareholder. There is no need to have a company secretary: anything that is required to be done by the secretary may be done by a director or by person authorised by the directors for that purpose.
- The Memorandum of Association is replaced by a much shorter document saying only that the members wish to form a company and, in the case of a company limited by shares, that they will take at least one share.
- The information that is required to be submitted to Companies House at incorporation has also changed - authorised share capital has been abolished and a statement of capital and initial shareholdings is required.
- Form 12 (the statutory declaration on formation) is replaced by a "statement of compliance".
- Details of any person appointed as an authorised signatory must also be produced on incorporation.
- Provisions have been introduced 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.
Articles of Association
- Model Articles for private companies limited by shares, public companies and private companies limited by guarantee, have been produced, and will apply unless specifically replaced or varied by a set of Articles produced by a company and filed at Companies House.
- It is not now possible to irreversibly entrench provisions into the Articles, e.g. a provision in guarantee company articles that prohibit profit distributions may be removed or amended if all of the members agree
Shares
- A private company with only one class of shares may allot shares without shareholder authority, unless its Articles provide otherwise.
- It will be easier to allot redeemable shares.
- 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.
- Shares may be denominated in any currency but must always have a par value
Directors
- To ensure 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.
- A statutory code of directors' duties has been introduced.
- Each 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. The Registrar is also able to release the residential address to certain authorities in certain circumstances.
- Previous provisions relating to disclosure and approval of transactions with directors have been revised and restated.
- Provisions for the removal of directors have been restated and amended.
- There is a new section relating to ratification of directors' acts by shareholders, but this will not prevail over a provision of law that provides that a particular act or omission may not be ratified.
Company administration
- E-communications are facilitated by the Act, with provisions allowing companies to communicate with their shareholders via email or websites.
- Private companies need not have a secretary; however, the duties carried out by the company secretary remain, e.g. the obligation to maintain a register of members, register of directors and register of charges. In addition, two new registers have been 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.
- A private company is not required to hold an annual general meeting, but still requires to file an Annual Return.
- More flexibility has been introduced to enable the company to set the level of shareholder approval required to change its name.
- The register of members must now be kept for 10 years (instead of the previous 20 years) and board minutes must be kept for at least 10 years.
Meetings and resolutions
- The majority necessary to consent to short notice has changed from 95% to 90%.
- The shareholder written resolution procedure has been changed, so that written resolutions are passed with the signature of the appropriate percentage of members, rather than by unanimity.
- If consent to the passing of the resolution is not obtained within 28 days of the circulation date, the resolution lapses.
- The provisions regarding calling and notice of meetings, appointments of proxies and corporate representatives, quorums and polls have all been restated and revised.
Accounts and Auditors
- There is re-ordering of previous accounting provisions to make it easier to find the provisions, but there is little change of substance.
- The accounts filing date for a private company is shortened to 9 months after the end of the relevant accounting reference period.
- The Act contains provisions which allow auditors to limit their liability to the company by contract.
- The Act 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.
Corporate procedures
Various corporate procedures are affected, such as the following:
- The prohibition on financial assistance is abolished for private companies, unless it is a wholly owned subsidiary of a public company.
- 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.
- There is a new procedure to make it easier to redesignate the currency of issued share capital.
- Changes are made to the purchase of own shares provisions.
- There are new sections relating to the bringing of derivative actions by shareholders (i.e. where a shareholder brings a claim alleging that the company has suffered loss and therefore his share value has suffered). Under the Act, shareholders 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.
For further information or advice, please contact Morag Radcliffe on 0131 220 3000.
Archibald Campbell & Harley, Solicitors
1 October 2009
