The new regime
Provisions in the Companies Act 2006 facilitating communication between companies and their shareholders by way of e-mail and making information available via company websites came into force on 20 January 2007. The new provisions apply to both public and private companies.
Companies already using electronic means to communicate with their shareholders can rely on existing shareholder consents and continue to provide certain information electronically under the new law. But if they want to take full advantage of the cost savings introduced by the new regime (for example, by making website postings the default position), then, along with companies new to shareholder e-communication, they need to take action.
Limited e-communication previously
Previously, e-communications between companies and their shareholders were permitted only in limited circumstances. Companies were able to circulate annual reports, summary financial statements, AGM notices and proxy appointments by e-mail or make them available on a website, provided each shareholder had agreed. However, it was unclear whether other company law requirements to communicate information “in writing” still required the use of paper.
The thrust of the new Act is that companies should, subject to shareholder consent, be able to use e-communication for all types of information to be sent to shareholders. But the right for individuals to continue to receive materials in paper format, if they wish, has been preserved.
Check existing permissions
In order to take full advantage of the 2006 Act’s provisions, any companies already using e-communications should check the relevant provisions of their articles of association, as they may set out specific consents to e-communicate, covering certain documents only. If this is the case, then a shareholder resolution or amendment to the articles may be required to extend the permission to general e-communication.
Opt out rather than opt in
The key change in the law on use of e-communications is in relation to the use of websites. The 2006 Act switches the balance. Previously, a shareholder had to actively consent to accessing information via a company’s website. Now the position is reversed, and if he fails to reply to a request from the company then (provided the request was made validly) he is deemed to have agreed to receive information in this way.
Making website communication the default position
The 2006 Act sets out a detailed procedure that a company must follow if it wants to make providing information via its website the principal method of communicating with its shareholders.
- Shareholders must have passed a resolution permitting the company to make information available in this way OR the company’s articles of association must contain a provision to that effect.
- The company must seek the agreement of shareholders individually as to whether they are willing to receive documents and information in this way.
- Shareholders then have 28 days to decide what to do.
- If a shareholder fails to reply within 28 days, the company can treat this as his deemed agreement to receipt of company information via its website.
- If a shareholder does not agree to website communications, the company cannot make another request to make the information available via a website within less than 12 months.
- The company has to notify the individual shareholder each time information is published on its website – the notice can be in writing or by e-mail (if her has expressly consented to being sent notices by e-mail).
Communication by e-mail
Under the 2006 Act companies are able to communicate and send information to their shareholders by e-mail, but as previously, the company still has to seek the individual agreement of each shareholder. The new law simply extends the range of information that can be sent this way. If a shareholder does not want to receive information by e-mail or if he fails to provide an e-mail address, then the company has to provide paper copies. The deemed agreement provisions that apply to use of websites do not apply to use of e-mail.
Who will make use of the new provisions?
Fully listed or AIM companies are the most likely to make use of the new provisions, although any private company with a significant shareholder base could benefit from the new law too. Allowing shareholders to access glossy annual reports online without incurring the substantial cost of a bulk print will be an attractive proposition. And bearing in mind shareholder apathy (many company missives are simply ignored), default use of websites may develop inadvertently, as company requests to make information available via a website are ignored.
Is it in force?
Some provisions of the Companies Act 2006 came into force in January 2007, and more will apply from 6 April 2007. There will be consultation on a detailed implementation timetable in February 2007. The Government has confirmed that all provisions will be in force by October 2008 but at the moment it is not clear whether that means that the bulk of it will come into effect on 1 October 2008 or whether provisions will be drip fed before then.