“Think small first”
One of the key objectives for the new Act is “think small first” – a commitment to making life simpler for smaller companies by reducing the administrative burden and modernising outdated procedures. The simplifications mainly apply to private companies, but even public companies will benefit indirectly if they operate a group structure using private company subsidiaries.
Annual general meetings for private companies will be a thing of the past. The current opt-out system requires all shareholders to pass an elective resolution to dispense with holding AGMs. This will be replaced by an opt-in system whereby a private company will only need to hold an AGM if it chooses to do so (or, subject to transitional arrangements for existing companies, their articles require them to do so). A knock-on effect of this change is that annual accounts and reports will not have to be laid in general meeting (although members must still be sent a copy) and auditor will not have to be re-appointed in general meeting either.
It will be easier for private companies to pass written resolutions, as the current requirement for unanimity will be abolished and a new concept of ordinary and special written resolutions will be introduced. These will be passed by a simple majority or 75% or more of the total voting rights of eligible members. However, companies still cannot use written resolutions to remove directors or auditors before the end of their term in office.
The new regime facilitating company communications with shareholders by using e-mail or posting materials on a website will apply to written resolutions too. Written resolutions will not have to be physically signed by a shareholder, it will be enough for the company to receive an authenticated document that identifies the resolution and indicates the shareholder’s agreement. Notice periods
Even if private companies decide not to make use of the simpler written resolution procedure, the Act will make it easier and quicker for all companies to hold meetings. The notice period for general meetings (other than a public company’s AGM) will be reduced to 14 days (unless the company’s articles specify a longer period). Private company shareholders holding 90% of the shares (or such higher percentage as may be specified by the articles up to 95%) can agree to hold a meeting on short notice.
Private companies will no longer be required to appoint a company secretary, although they may do so (or continue to do so) if they wish (or their articles require it). If a secretary is not appointed, the directors will still have to determine who will be responsible for carrying out company secretarial functions. Public companies must still appoint a secretary.
The period that companies have to keep minutes of directors’ and company meetings will be reduced to 10 years from the date of the relevant meeting and the period for keeping records in relation to former members will be shortened from 20 years to 10 years.
Companies formed under the 2006 Act will have a new style constitution, with their articles being the principal document. The memorandum will simply be an “historical snapshot” of the position at incorporation, setting out details of the subscribers to the first shares, but it will never need to be updated afterwards. Companies will be deemed to have unrestricted objects (or powers), unless their articles specifically provide otherwise. Model forms of articles for public companies and for private companies limited by shares and by guarantee will be published and companies will be able to choose whether to adopt some or all of the provisions.
Existing companies will not have to update their memoranda, because provisions in an existing memorandum of a type that will not form part of a new style memorandum will be deemed to form part of the articles. “Default” model articles will continue to be Companies Act 1985 Table A (assuming that was the version of model articles in force at incorporation). But if they want to take advantage of some of the streamlined procedures offered by the new Act, then they will need to amend their articles accordingly. If you would like help with updating your articles please get in touch with one of the contacts at the end of this briefing.
Share capital and capital maintenance
The reforms that the Act will introduce in relation to issue and maintenance of share capital are mainly technical, though there are some helpful procedural relaxations. It will be possible to create and allot shares by board resolution (as the concept of authorised share capital will be abolished) and, even then, private companies with only one class of shares will be excluded from the regime requiring shareholders to authorise their directors to allot shares. The Act will introduce a simpler procedure for reductions of share capital by private companies (dispensing with the need for Court approval in certain cases), and will allow them to provide assistance, such as giving a guarantee or providing security, in connection the purchase of their shares by a third party.
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 at the end of 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.
Link to more briefings on the Act
More briefings are available in the Lawbase / Updates section of our website.