• COMPANIES ACT 2006


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    • Abstract: COMPANIES ACT 2006Private company informationNOVEMBER 2007 COMPANIES ACT 2006:Private CompanyInformationThe following information is likely to be ofmost interest to those with some knowledgeof company law. It is intended to point out

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COMPANIES ACT 2006
Private company information
NOVEMBER 2007
COMPANIES ACT 2006:
Private Company
Information
The following information is likely to be of
most interest to those with some knowledge
of company law. It is intended to point out
those changes to the previous law which are
likely to be of most significance to the
generality of private companies. It should
be read in conjunction with the Companies
Act 2006 (available at www.tsoshop.co.uk )
and should not be regarded as a substitute
for reading that Act or seeking legal advice.
Full explanatory notes on the provisions
of the Act are also available at
www.tsoshop.co.uk together with tables
of derivations and destinations for the
Act’s provisions.
Memorandum of Association
1. Under the Companies Act 2006, the role of
the memorandum of association is greatly
reduced for both existing companies
and new companies. In future it will contain
only very limited information: the names of
the subscribers; the fact that they wish to
form a company; and that they agree to
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become members of the company and, if the
company has share capital, take at least one
share in the company each. It will be
primarily an historical record rather than
affecting the ongoing operation of the
company. Information that was previously
provided in the memorandum on formation
will in future be provided to the Registrar in
the form of a series of statements made in
the application for registration or in the
articles. The formation provisions have been
drafted with a view to supporting electronic
incorporation, and it is envisaged that the
required information could be provided to
the Registrar in the form of a series of data
entries or alternatively in hard copy.
2. For existing companies (i.e. those existing
before the coming into force of the Act), this
means that any provisions contained in their
memorandum which go beyond that limited
information will, from October 2009, be
regarded as provisions of their articles of
association.
Objects
3. The memorandum used to provide the
company’s objects. For new companies this
will not be necessary, as the default position
under the new Act is that a company’s
objects are unrestricted [s. 31(1)]. Existing
companies may wish to take advantage of
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this change by resolving to remove a
statement of objects from their articles that
were previously in the memorandum.
Companies should note that they would be
required to give notice of such a change to
the Registrar [s. 31(2)].
Shares
4. The previous style of memorandum also
set out the company’s authorised share
capital or, if it was a guarantee company, the
terms of the guarantee. From October 2009
new companies will not be required to
specify their authorised share capital. Instead
they will need to deposit an initial statement
of capital or, as appropriate, a statement of
guarantee when incorporating. This will then
need to be updated by the company when
appropriate, such as when new shares are
issued.
5. Shares will still be required to have a
nominal value.
6. Although authorised share capital has
been abolished for new companies, for
existing companies it will continue to
operate as a restriction in the articles. It will
act as a ceiling on the number of shares that
can be allotted. Existing companies will need
to amend their articles to abolish reference
to authorised share capital if they want to
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allow the company to allot beyond
that ceiling.
7. Most private companies have only one
class of share. In these companies, directors
will be able to allot further shares of that
class, subject to any rights of pre-emption in
either the articles or the Act (and subject to
any ceiling set out as in the previous
paragraph), without prior authorisation from
the members, as is currently required. This
new power is subject to provision in the
articles: a company may need to amend its
articles if it wants the power to apply.
Alternatively it may wish to consider whether
the articles should prohibit the directors’
ability to allot shares without first getting the
members’ approval, or whether it wants to
place some other restriction on the directors’
allotment powers.
8. The pre-emption rights conferred by the
Act may be disapplied either in the articles or
by special resolution [s. 569(1)], so some
companies may wish to consider amending
their articles to permit this.
9. In private companies with more than one
class of share, or where private companies
wish to allot shares of a new class,
the directors will require authorisation for
allotting shares by an ordinary resolution of
the members. Such authorisation can be
general or in relation to a specific allotment,
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and can only be for a maximum of five
years. This is a change from the present rule,
as private companies can currently give
authorisation for an indefinite period.
10. The previous statutory rule that
companies cannot give financial assistance
for the purchase of their own shares has
been abolished for private companies.
Previously, private companies who wished to
give such financial assistance had to comply
with a “white-wash” procedure.
11. Private companies may in future reduce
their capital by passing a special resolution
coupled with a statement by each of the
directors that the company is solvent.
Previously a reduction of capital required the
approval of the court. The new procedure
is subject to any provision in the articles
restricting or prohibiting reduction of capital.
These procedures are similar to those which
apply to other ways of achieving reductions
of capital, such as the redemption or
purchase by the company of its own shares
out of capital.
Model Articles
12. Model articles (which were set out in
“Table A” under the old arrangements) will
continue to be prescribed. The Secretary
of State will now prescribe different sets of
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model articles for the most common types of
company: private companies limited by
shares; private companies limited by
guarantee; and public companies.
13. Model articles are “default” in the sense
that they apply where the company either
has not provided for its own articles, or
where its articles do not cover a particular
subject. As before, companies can exclude
some or all of the model articles.
14. The new model articles for private
companies will eliminate much of the
complex regulation which used to be
contained in Table A but which is not
relevant to small companies.
15. Existing companies will still be subject to
the model articles that were in force at the
time the company was registered, unless a
company has subsequently chosen to make
different arrangements. However, existing
companies can adopt the new model articles
instead if they wish, by members passing
an appropriate special resolution. New
companies registering from 1 October 2009
will have the new model articles as a default,
unless they choose to register different
articles.
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Entrenchment of articles
16. Provisions of the articles can now be
entrenched. Articles can say that certain of
their provisions can only be amended or
altered if specific conditions are met or
procedures followed. Existing companies
may wish to take advantage of this new
provision by amending their articles.
Directors: minimum
requirements
17. Under the Act, all companies must have
at least one natural person as a director, so
a company cannot be the sole director of
another company. If a company’s only
director is a company, it will need to appoint
a natural person.
18. A new minimum age of 16 is set for
directors. In future if the company appoints
a younger person as a director his
appointment will be void.
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Directors: other changes
19. Companies are no longer required to
maintain a register of dealings in their shares
by directors and their spouses, civil partners,
or children. Directors in future will not be
required to provide details of their other
directorships.
Directors’ general duties
20. Directors’ general duties to their
companies are, for the first time,
comprehensively set out in the Act. The
general duties of directors have been
developed until now in case law. In order to
make the rules more accessible, the Act
confirms the existing case law by stating that
the primary duty of directors is to act in a
way which they consider most likely to
promote the success of the company for the
benefit of its shareholders as a whole and
that, in doing so, they will need to have
regard where appropriate to long term
factors, the interests of other stakeholders
and the community, and the company’s
reputation. While the Act generally codifies
the case-law position, there are two
major changes.
21. Firstly, the Act says that a director
proposing to enter into a transaction with the
8
company need only disclose his interest
to the board, rather than seek the approval of
shareholders. Companies are able to make
provision on these lines in their articles, and
this is what the majority of companies have
done.
22. Secondly, in future non-conflicted
directors of private companies can authorise
what would otherwise be a director’s conflict
of interest (other than transactions with the
company itself), rather than refer it to
shareholders for approval as previously, so
long as nothing in the articles invalidates
this. However, if a conflict is already
permitted by articles then this will continue
to be the case. [s. 180(4)(b)].
23. Loans, quasi-loans and credit
transactions to or in favour of directors
[ss. 197 – 214] are no longer prohibited but
are now subject to member approval if
there is adequate disclosure and the criminal
offence has been repealed.
24. Ratification of breaches [s. 239]:
negligence, default, breach of duty and
breach of trust by directors continue to be
ratifiable by the members. In future, for an
effective ratification a company will need to
disregard the votes of the director in default
and any person connected with him. This
does not affect the unanimous consent rule,
so if all the members are defaulting directors
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and/or connected persons and they all vote
to ratify the default, then that vote is
effective. However, directors and
shareholders still cannot ratify certain
breaches, eg one that impacts on creditors.
Directors’ addresses
25. Every company continues to be required
to keep a register of directors. However, in
order to protect directors as appropriate, the
Act now provides that the register should
contain service addresses for the directors
rather than requiring details of their
residential address. The service address can,
for example, be a residential address or
stated simply as “the company’s registered
office”.
26. The company must also keep a separate
register of the directors’ residential
addresses.
27. Both the service and the residential
address (or the fact that the service address
is the residential address) will need
to be supplied to the Registrar of Companies.
However, the residential address (or the fact
that the service address is the residential
address) will generally remain confidential to
the company, the Registrar and certain
specified public bodies and credit reference
agencies. It will therefore be withheld from
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the public register. However, there may be
certain circumstances where the residential
address has to be disclosed, such as if
communications from the Registrar remain
unanswered or communications are not
coming to the director’s attention.
Company Secretary
28. Private companies will, from 6 April 2008,
no longer be obliged to have a company
secretary, although they may continue to
have one if they wish.
29. If they no longer wish to have a secretary
they need do nothing, apart from the
secretary resigning or his or her appointment
being terminated. The Act says that a
director or person authorised by the
directors can do anything required to be
done by or to the secretary [see s. 274(b)]. If
a private company does continue to have, or
appoints, a secretary then s/he will have the
same status as previously.
Executing documents
30. Affixing a common seal is relatively rare
now. Apart from that, documents such as
contracts can, as previously, be executed by
companies either by signatures of two
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directors, or by signatures of one director
and the secretary if there is one. Documents
can also be signed by just one director, so
long as s/he signs in the presence of a
witness.
Company Names: change
31. A company can now set its own
procedure in its articles for changing its
name [s. 79]. Existing companies may wish
to amend their articles to allow this.
Company Names: objection
32. Anyone may now object to a company’s
name if it either interferes with a name in
which they have goodwill or is so similar to
such a name that it would suggest a link
between them and the company which is
misleading. If the objection is upheld the
company may be directed to change its
name. [see generally s. 69 et seq]. However a
company can only be required to change its
name if it cannot show any of the specified
legitimate reasons for it to have the name, or
if it can be shown to have chosen the name
for its value to someone else, with the
intention of blocking its use by that person,
or in effect, selling it.
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Trading Disclosures
33. The current requirement is for the
company name to appear legibly in a sign
outside all its business premises, including
the Registered Office, and in all business
communications. This includes (a) all
business letters, (b) all notices and other
official publications, (c) all websites, (d) all
bills of exchange, promissory notes,
endorsements, cheques, orders for money or
goods purporting to be signed by or on
behalf of the company, and (e) all bills of
parcels, invoices, receipts, letters of credit).
In addition, the company's business letters,
order forms and websites have to include the
company's place of registration, its
registered number, and the address of its
registered office. A company’s name,
number, registered office and other
particulars, currently required to be
displayed on business letters and other
documents, must now also be provided on
electronic documents, as well as on any
company website or order form [see The
Companies Act 2006 Registrar, Languages
and Trading disclosures Regulations 2006].
34. There is also a new provision permitting
the Secretary of State to require companies
to supply, on request, specified information
to those they deal with in the course of their
business [s. 82(1)(c) regs].
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Register of Members
35. The register of members continues to be
open to the inspection of members without
charge and any other person on payment of
the requisite fee. However, requests for
inspection must in future outline details
about the person seeking the information,
whether the information obtained will be
disclosed to others, and what the purpose
for the request is. If the company does not
think it is a proper purpose, it may apply to
the court for, and the court may grant, an
order that the company need not comply
with the request.
Communications
36. The new Act makes it much easier for
companies to communicate electronically,
either by email or another electronic form or
through a website. The general principle is
that companies should be able to
communicate in hard copy or electronically.
These provisions came into force in
January 2007.
37. Hard copy Documents or information
sent to a company or by a company can
continue to be done in hard copy form, by
sending the document by post or by hand to
the relevant address.
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38. Electronic form Documents or
information can only be sent to or by a
company electronically, if the company or
recipient respectively has agreed generally
that all documents/information will be sent
electronically, or has agreed specifically in
relation to a particular document/
information. It should be noted that various
provisions of the Act deem a company to
have agreed to receiving documents/
information electronically: for example, if a
company gives an electronic address in any
document containing or accompanying a
written resolution, then it is regarded as
having agreed that documents or
information relating to it can be sent to the
company electronically at that address
unless it says otherwise [s. 298].
39. The Act also allows companies to agree
that information or documents are validly
sent to it or by it in any way which the
company agrees with the sender or recipient
respectively, unless those provisions of the
Act apply which only allow information to be
supplied by companies in particular ways.
40. Companies should therefore consider
whether they wish to have agreements,
especially general agreements with
members, that communications can be
received in certain ways, especially
electronically.
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41. The Act now allows a company to
provide information to members on a
website. This can only be done where the
recipient has agreed to it being done that
way. However, if the members generally
agree that websites might be used for
communication, or if there is such provision
in the articles, then individual members will
generally be regarded as having agreed if
they are asked for agreement and do not
respond within 28 days. Companies may
wish to consider proposing an appropriate
resolution or change to the articles.
42. Every time new information is made
available on the website, the company will
need to inform the relevant members of this,
either in hard copy or electronically.
Companies wishing to make best use of the
website provisions will probably wish to
secure members’ agreement to email
communication.
43. Shareholders will always be entitled to
request hard copies of documents or
information [s. 1145].
Resolutions and Meetings
44. The Act abolishes the current obligation
for private companies to hold annual general
meetings. Companies will still be able
to hold shareholder meetings if they wish to;
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and meetings can be instituted by the
directors at any time, or by members
representing 10% of voting shares (5% if it is
more than 12 months since the members
met). Companies may still need to hold a
meeting in certain circumstances, since they
will not be able to dismiss a director or an
auditor before his term of office by written
resolution [see s. 288(2)(a)].
45. The vast majority of decision-making in
private companies is obviously carried out
by the directors. However, the members or
shareholders of the company also have a
role in taking various decisions – such as the
appointment of the directors; amending the
articles etc. Often in small companies, of
course, the shareholders and directors will
be the same people. The Act therefore makes
it easier to use written resolutions for
decisions by shareholders, and is drafted on
the basis that most decision making by
members in private companies will be by
written resolution, rather than by calling
meetings of shareholders.
46. In future, written resolutions can be
proposed either by the directors or by
members representing either 5% of
members eligible to vote or whatever lower
percentage the company’s articles provide.
Articles can be amended to substitute a
lower percentage.
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47. Previously, written resolutions required
unanimity. Now, the Act refers to two types
of resolution: ordinary, which to be passed
requires a simple majority of those eligible
to vote; and special, which requires 75% of
those eligible to vote to be in favour. Written
resolutions will no longer have to be notified
to the auditors since, following other recent
reforms, most small companies are no
longer required to have auditors.
48. The Act does not override provisions in
the articles which require a higher majority
than the Act specifies for a particular action.
So, if the Act requires only an ordinary
resolution as it does in the majority of cases,
but the articles require a special resolution or
unanimity, then the provision in the articles
will need to be complied with.
49. As from 1 October 2007, any provision in
a company’s articles which provides that a
member voting by proxy will have fewer
votes than if he votes in person will be
invalid.
50. Where the company does decide to have
meetings, the arrangements have not
changed significantly. Since the AGM
requirement has been abolished, private
company meetings are now all on 14 day
notice unless the articles say otherwise.
Now 90%, rather than 95%, of members can
agree to hold a meeting on short notice
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(although the articles can specify a higher
percentage up to but not exceeding 95%).
Proxies
51. Shareholders can now appoint more than
one proxy at a meeting, up to a maximum of
one proxy per share. This right will override
any conflicting provision in a company’s
articles.
Accounts, Reports and Audit
52. The time for private companies to file
their accounts with the Registrar of
Companies has been reduced from 10
months to 9 months from the year end.
The medium-sized group exemption from
preparing consolidated accounts has now
been removed: in future only small groups
will be so exempt.
53. In recognition of the abolition of the
requirement for private companies to hold
an AGM, they will now no longer be required
to send out their annual accounts prior to a
general meeting. Instead, the annual
accounts, or summary financial statements
if appropriate, must be sent to members by
the time they are due to be filed with the
Registrar of companies.
19
Accounting provisions will be separately set
out for small private companies under
regulations to be made in April 2008 (save
for a few provisions common to all
companies that will remain in the Act).
54. Many small private companies are
exempt from audit. Small private companies
who do not take advantage of the
audit exemption and so have audits will be
affected by certain changes in the Act. As
there will no longer be a requirement for
annual general meetings, an auditor will be
deemed to be reappointed for the following
year unless the company takes steps to end
his appointment, or to appoint a different
auditor. It will also now be possible for the
company, by ordinary resolution, to choose
to agree a limitation of the auditor’s liability
for a financial year.
Annual return
55. There is no change to current
arrangements on the face of the Act, but the
regulations will provide for exemptions from
the requirements for details of shareholders
and their shareholding so that, in the case of
private companies, shareholders’ addresses
are no longer required.
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Printed in the UK on recycled paper containing a minimum of 75% post consumer waste.
Department for Business, Enterprise and Regulatory Reform
First published November 2007. © Crown Copyright. Pub 8575/1k/11/07/AR. URN 07/1460


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