How will the Companies Act changes affect your business?
19 October 2009
Jonathan Roberts looks at the final changes to the Companies Act 2006 and considers the impact they will have on private companies and directors.
The Companies Act 2006 is the most detailed piece of legislation ever to pass through the legislature, running to over 1300 Sections and 16 Schedules. Its provisions have been implemented gradually over the last three years with the final changes having come into force on 1 October 2009.
The stated aim of government in passing the 2006 Act was to simplify the regulation of private companies. Whether or not this aim has been achieved remains to be seen, but what are the immediate implications of the new legislation for private companies and what, if any, changes do directors of such companies need to consider making at this time?
Directors
The most important change for directors is the codification of directors’ duties. These duties were previously enshrined in case law and the codification is to be welcomed. It is important for all directors to understand the current statement of duties (and what those duties mean in practice).
Directors have the duty to:
- Act in accordance with the company’s constitution and exercise powers for their proper purpose;
- Promote the success of the company for the benefit of its members as a whole;
- Exercise independent judgment;
- Exercise reasonable skill, care and judgement;
- Avoid conflicts of interest;
- Not accept benefits from third parties;
- Declare the nature and extent of any interest in a proposed transaction or arrangement with the company.
In addition to the general duty to avoid conflicts of interest, the Act also introduces a mechanism whereby directors are authorised to ratify conflicts of interest at board level (though, for companies formed prior to 1 October 2008, it is necessary for a shareholders’ resolution to be passed to take advantage of this provision).
A number of administrative provisions in relation to company directors and secretaries have also been introduced:
- A company must have at least one “natural” person as a director;
- Company directors are now able to avoid publicising their residential addresses on the register at Companies House;
- Private companies are now no longer required to have a company secretary, though will still need to designate somebody to carry out those duties previously carried on by a secretary.
Company Constitution
A number of the provisions of the Act have changed the way in which a company can constitute itself. The historic model of a separate memorandum and articles of association has been replaced with a new form of articles, incorporating provisions previously included within the memorandum.
Many companies will be unaware of the detailed of provisions of their current articles (which are likely to have been based on the precedent adopted by the formation agent at the time of formation). It may be prudent for a company to consider a review and update of their articles to take advantage of relaxations under the new regime (for example, the requirement to hold an AGM – see below).
The Act has also introduced a number of provisions relating to shares and share capital. The concept of “authorised” share capital has been abandoned and shareholder approval is now no longer needed to allot shares (provided only one class of share exists). Again, private companies need to pass a shareholders resolution to take advantage of this provision.
Over the last 12 months, we have acted for a number of companies seeking to take advantage of the new procedure for reducing share capital (introduced on 1 October 2008), which relaxes the previous regime and gives greater flexibility for restructuring share capital.
Company Administration and Meetings
A number of provisions aimed at relaxing the burden of administration have been introduced.
The government accepts that most private companies do not hold AGMs and the requirement to do so has now been removed. It has also been accepted that private companies frequently use written resolutions rather than calling a formal general meeting and the required majority for passing written resolutions has been reduced.
New provisions relating to registers and records and annual returns are also in force. Again, these are expected to improve the relieve some of the more onerous responsibilities under the previous regime.
For more information on this subject or any other legal matter,
please contact us:
Tonbridge: 01732 770660
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