Companies Act 2006

This information is taken from Sandy Adirondack's Legal Update - www.sandy-a.co.uk
 
 

Updated 18/11/07.
This is not a comprehensive summary but includes the main points applying to companies limited by guarantee. It does not cover companies limited by shares. Unless indicated otherwise, all of these changes apply in the same way to charitable companies and community interest companies as to ordinary companies limited by guarantee. For web addresses for the Act and explanatory notes, see Resources.

COMPANY CONSTITUTION

From 1 October 2007 the concept of a company constitution is being introduced. This includes not only the memorandum and articles, but also certain resolutions and agreements that are specified in the Act as resolutions and agreements affecting a company's constitution. Such resolutions and agreements have to be sent to the registrar of companies in the same way that special resolutions now have to be (ss.29-30).

An example of a resolution affecting a company constitution would be a resolution allowing information required under the articles or company law to be provided to company members via a website (see Company communications).

COMPANY DIRECTORS

GENERAL DUTIES OF DIRECTORS
There is for the first time a statutory statement of the duties of company directors. Some of these came into effect on 1 October 2007, and the remainder are expected to come into effect on 1 October 2008. Those in effect from October 2007 are:

  • to act within powers;
  • to promote the success of the company;
  • to exercise independent judgment;
  • to exercise reasonable care, skill and diligence. (ss.170-174). The second duty, to promote the success of the company, generally means for the benefit of the members (shareholders in a company limited by shares). But for charitable companies, non-charitable voluntary sector companies and community interest companies — where the purpose of the company is not to make money for shareholders — "promoting success" means success in achieving the company's purposes. In promoting the success of the company, directors have to consider the long-term implications of their decisions, and have to take into account the interests of employees, suppliers, customers and the environment (s.172).

    Action:Directors should be informed that these are statutory duties with which they must comply. Decisions of the directors, whether made at meetings or in any other manner, should be minuted or recorded in a way that makes clear that they have taken into account their duties.

    The directors' statutory duties reflect common law duties, but in some cases use different terminology which could lead to problems in interpretation.

    For the remaining duties, see provisions expected to come into effect on 1 October 2008.

    CONNECTED PERSONS
    From 1 October 2007 the definition of "connected person" is extended to include the director's parents, children or step-children of the director who are over 18 years old (those under 18 are already included under section 346 of the 1985 Act), persons with whom the director lives as partner in an enduring family relationship, and children or step-children of the director's unmarried partner if they live with the director and are under 18 years of age (ss.252-253).

    MINUTES OF DIRECTORS' MEETINGS
    From 1 October 2007 there is a new requirement for minutes of directors' meetings to be kept for at least 10 years (s.248).

    DIRECTORS' ANNUAL REPORT
    From 1 October 2007 the directors' annual report must, except for small companies, include a business review setting out how the directors have complied with their duty to promote the success of the company (s.417). A small company is one which meets at least two of the following conditions: annual turnover £5.6 million or less; balance sheet total £2.8 million or less; average number of employees 50 or fewer.

    The business review must contain a fair review of the company’s business; the principal risks and uncertainties facing the company; a balanced and comprehensive analysis of the development and performance of the company’s business during the financial year and the position of the company’s business at the end of that year; analysis using financial key performance indicators; and for large companies analysis using other key performance indicators such as environmental and employee matters.

    Since 20 January 2007 a director has been liable to the company for loss it suffers as a result of an untrue or misleading statement in the directors' report (but only if the director knew or was reckless as to whether the statement was untrue or misleading), or loss arising from the omission from the report of anything required to be included (but only if the director dishonestly concealed a material fact). Under this provision, a director cannot be held liable to any other person (s.463).

    Commentators call this provision a safe harbour because directors will not be liable to the company if they include in their report information about, for example, future plans which do not come to fruition and thus cause a loss to the company, nor will they be liable for losses suffered by third parties, such as investors in a commercial company. The safe harbour provisions do not apply to statements that are in a document other than the directors' statutory report, nor do they exempt the directors from criminal liability or civil penalties.

    COMPANY MEMBERS

    ACCESS TO REGISTER OF COMPANY MEMBERS
    From 1 October 2007 the right to inspect the register of company members (members of the organisation) and to be provided with copies is no longer absolute as it has been. The public now has a right to inspect and be provided with a copy of register entries only if they provide their names and addresses, the purpose for which the information will be used and, if the access is sought on behalf of others or the information will be disclosed to anyone else, similar details for them. The company can apply to the court if it thinks the information is not going to be used for a proper purpose (ss.116-119).

    The register of company members must be open for inspection every working day. The previous right to close it to the public for up to 30 days per year was repealed from 6 April 2007. Note that the right to inspect and take information from the register overrides the Data Protection Act 1998.

    The fees for copying from the register of members and from other company records went up from 1 October 2007. The new fees are in the Companies (Fees for Inspection and Copying of Company Records) Regulations 2007 at www.opsi.gov.uk/si/si2007/20072612.htm.

    Action:If your organisation is one where members of the public might want to inspect the register of company members, get advice about putting appropriate procedures in place.

    DERIVATIVE CLAIMS
    From 1 October 2007 a new provision for derivative claims allows a company member to bring a claim, on behalf of the company, against one or more directors for failure to comply with their statutory duties as directors. Before such a claim can proceed, the member must obtain consent from the court (ss.260-264).

    RESOLUTIONS AND COMPANY MEETINGS

    ANNUAL GENERAL MEETINGS
    From 1 October 2007 private companies (companies which are not PLC's) will no longer have to hold an annual general meeting or other general meetings, unless the articles require this. But even where the articles do not require an AGM or EGM, company members have a right to require one to be held, and one must be held where there is a resolution to remove a director or auditor before the end of their term (ss.281-288).

    The articles can be amended to remove the requirement for an AGM or other general meetings. If this is done great care must be taken to amend linked provisions such as election of directors, and to remove provisions requiring, for example, annual accounts to be laid before a general meeting. Specialist advice is likely to be needed for this. However, for many voluntary sector companies it will still generally be good practice to hold AGMs and they may not want to remove the requirement.

    Action:If the articles require an AGM or other general meetings, consider whether to amend them.

    NOTICE
    Unless the articles require longer notice, from 1 October 2007 AGMs and other general meetings require only 14 days' notice (s.307). If the articles require 21 days or longer for some meetings, this can be amended to bring it down to 14.

    Action:If the articles require notice longer than 14 days for general meetings, consider whether to amend them.

    The Act includes detailed provisions for general meetings (ss.301-335). One such provision is that where a company gives an electronic address in a notice calling a meeting, any document or information relating to proceedings at the meeting — such as proxies — may be sent by electronic means to that address unless the notice specifies otherwise (s.333).

    Action:Decide whether to allow proxies and other formal communications about meetings to be provided to the company by email, fax or other electronic means. See Company communications for more about this.

    PROXIES
    From 1 October 2007 every company member has a statutory right to appoint a proxy — or in some cases more than one — for general meetings, even if the articles explicitly say that proxies are not allowed. This could have a significant impact on voluntary sector companies, especially those with a large membership (where there could be a lot of additional admin) and those which value face-to-face decision-making at meetings (which could be distorted by the use of proxies) (ss.324-331).

    The notice must include details of the members' right under s.324 of the Act to appoint a proxy to attend, speak and vote at the meeting. If is an offence, for which every director can be fined, to send out a notice without the required information about the right to appoint a proxy. But failure to send the information does not invalidate the meeting.

    Under the new rules the time for the return of the proxy form cannot be more than 48 hours before the meeting. Any part of a day which is a weekend, Christmas, Good Friday or a bank holiday is not counted in the 48 hours, so for a meeting at 3pm on the Tuesday after a bank holiday, the deadline for receipt of the form would be 3pm the preceding Thursday — not 3pm Sunday as it was under the Companies Act 1985.

    Where the articles do not already include arrangements for proxy voting, the organisation will need to put arrangements in place for the appointment and termination of proxies, and may want to amend the articles to include these procedures. Note that the articles cannot remove or reduce the right of every company member to appoint a proxy, cannot reduce the statutory rights of proxies, and cannot require the notice of appointment or termination to be delivered to the company more than 48 hours (as defined above) before the meeting. Where the articles prohibit proxies that provision is void (invalid) but the organisation may want to amend the articles to remove it, in order to avoid confusion.

    Very important action:Ensure the notice of all general meetings goes out with appropriate wording, and ensure the organisation can manage the process.

    WRITTEN RESOLUTIONS
    Instead of being made at general meetings, virtually all decisions by company members can be made by written resolution (except to remove a director or auditor before the end of their term, or when the company members require a decision to be made at a meeting). From 1 October 2007 written resolutions no longer require 100% agreement by everyone entitled to vote. The proportion of vote required is now the same as for resolutions passed at a general meeting, i.e. more than 50% of the vote for an ordinary resolution and at least 75% for a special resolution. Where the company allows electronic communications, agreement can be given electronically. Unless the articles specify otherwise, there will be a cut-off period 28 days after the resolution is circulated; if the resolution does not have enough votes by the cut-off date, it will not be passed (ss.288-300).

    Where the articles say that written resolutions require 100% agreement, the new lower percentages apply only to resolutions on issues specified under company law — for example, to amend the articles. For resolutions on matters which are not subject to company law, the higher provision in the articles still apply.

    Action:Consider whether it is appropriate for company members to make some decisions by written resolution, rather than at general meetings. If the articles contain provision for written resolutions, consider amending it to mirror the new percentages, or if the company still wants some resolutions to require more than this, clarify which ones.

    MINUTES, AND RECORDS OF WRITTEN RESOLUTIONS
    Records of written resolutions and general meetings have to be kept for at least 10 years, rather than throughout the life of the company and beyond as in the past (ss.355-359). Good practice for voluntary sector organisations is almost certainly to keep them longer than 10 years.

    AUDIT

    For provisions relating to the audit of charitable companies see audit of charitable companies.

    AUDITORS' TERM OF OFFICE
    From 1 October 2007 where a private company has an auditor or auditors, their term of office will generally run from 28 days after circulation of the accounts until the end of the corresponding period the following year. This applies even if the auditors are appointed at a general meeting where the company's accounts are laid.

    Auditors appointed by the company members will be deemed to be re-appointed at the end of their term of office unless the company members decide otherwise, the articles specify that there must be an appointment/re-appointment process, or the directors have agreed that audited accounts are unlikely to be required so there is no need for the auditor to be re-appointed.

    Auditors appointed by the company directors will be deemed to be re-appointed if there was an elective resolution to dispense with the annual appointment of auditors in place immediately before 1 October 2007. Unless such a resolution was in place, auditors appointed by the directors must be appointed by the company members the following year (ss.485-488).

Updated 5/4/08.
This is not a comprehensive summary but includes the main points applying to companies limited by guarantee. It does not cover companies limited by shares. These changes apply in the same way to charitable companies and community interest companies as to ordinary companies limited by guarantee. For web addresses for the Act and explanatory notes, see Resources.

COMPANY SECRETARY
From 6 April 2008private companies (which the vast majority of voluntary sector companies are) will no longer have to appoint a company secretary unless the articles say there must be one (but the articles can be amended to remove the requirement) (s.270). The duties of the company secretary will still have to be carried out, either by a director or directors or by a person or persons authorised generally or specifically to do so by the directors —.

If the articles only refer to a secretary's duties — such as receiving or signing documents — this does not mean that the company has to have a secretary. Action:If the articles require a secretary, consider whether to remove this requirement. You will then be free not to have a secretary. If the articles do not require a secretary, the company directors can choose whether to have one or not. If an employee is company secretary, advice should be taken before removing this responsibility from the job description, as it is likely to be a variation of contract.

REMOVAL OF FORMER COMPANY MEMBERS FROM THE REGISTER
From 6 April 2008entries for former company members can be removed from the register of members after 10 years, rather than 20 (s.121).

EXECUTION OF COMPANY DOCUMENTS
From 6 April 2008, company documents can be executed by two directors, or by the secretary (if there is one) and a director, or by one director in the presence of a witness who attests the signature (s.44).

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Updated 4/4/08.
This is not a comprehensive summary but includes the main points applying to companies limited by guarantee. It does not cover companies limited by shares. These changes apply in the same way to charitable companies and community interest companies as to ordinary companies limited by guarantee. For web addresses for the Act and explanatory notes, see Resources.

ACCOUNTS AND REPORTS
For financial years starting on or after 6 April 2008:

  • There is a new duty on company directors not to approve the company's annual accounts unless they are satisfied the accounts give a true and fair view of the company's (or the group's, in the case of group accounts) assets, liabilities, financial position and profit and loss (s.393).
  • Private companies no longer have to lay their annual accounts and reports at an AGM and send them to members 21 days before the AGM. Instead, the accounts and report or summary financial statement must be sent to all members for whom the company has a current address, and to certain other people, no later than the date the company has to file the accounts at Companies House or, if earlier, the date when the accounts are actually delivered to Companies House (ss.423-429). For many voluntary sector companies it will still be good practice to send out the accounts before an AGM or other general meeting, and to present the accounts at the meeting.
  • The accounts have to be filed at Companies House within nine months (reduced from 10 months) after the end of the relevant accounting reference period. If the relevant accounting reference period is the company's first and is a period of more than 12 months, the filing deadline is nine months from the first anniversary of the incorporation of the company, or three months after the end of the accounting reference period, whichever is later (s.442). AUDITORS
    For financial years starting on or after 6 April 2008, where the audit is carried out by a firm rather than an individual the firm's senior statutory auditor (a new position) must sign the audit and his or her name must be on all copies of the audit report circulated by the company (ss.503-506).

    New provisions will allow for liability limitation agreements under which a company and its auditor can agree to limit the auditor's liability to the company. Such an agreement cannot be for more than 12 months, and will be valid only if it is fair and reasonable (ss.532-538).