With almost every aspect of business life transformed in recent years by e commerce, the good old AGM and the accompanying telephone book sized shareholder voting pack seem like a throwback to the days of ink wells and pens made out of feathers.
But all that could be about to change. Last month, new provisions were introduced for email and website communications between companies and shareholders to become the norm.
While large parts of the Companies Act 2006 have yet to come into force, the parts of the Act relating to electronic communications were brought into effect in January, to allow the early delivery of the benefits of e-communications to companies and their shareholders.
The Government has been keen to promote the potential for substantial cost savings to businesses and improved accessibility to more timely, up-to-date information for shareholders, not to mention the benefits to the environment. But is it that straightforward?
The general principle of the Act is that companies should, subject to shareholder approval, be able to default to using e-communications, such as email and websites. However, individuals will retain the right to receive information in a paper format, if they so wish.
The new rules apply to all private and public companies incorporated in the UK.
Communications by a company
The key change permits companies to use websites to communicate with their shareholders, provided that certain procedures have been followed:
- An ordinary resolution (which must be filed at Companies House) of the shareholders or the company’s articles of association must provide for this;
- Each shareholder must then be individually asked for their consent and given 28 days to respond. The company must make it clear that if the shareholder does not respond within this time limit, then they will be deemed to have given their consent;
- The shareholder must also be notified that the document has been posted;
- Any shareholder is entitled to request a hard copy of the electronic communication at any time, free of charge.
Communications to a company
- Where a company has provided an electronic address in a notice a shareholder can now communicate with the company using this address; and
- Where a company has given an electronic address in a notice, it is deemed that any document relating to either the meeting or proxy may be sent to the electronic address provided.
While some companies already use website and email communications to provide information to their shareholders, we recommend that all businesses review their practices, procedures and documentation (e.g. accounts, reports and summary financial information) to ensure they comply with the new provisions. Companies should consider the following:
- Review requirements to update the ordinary resolution or company’s articles of association to provide for the e-communications changes;
- Pass any required resolutions and obtain individual shareholders’ consent;
- Amend the meeting notice, instrument of proxy or proxy invitation to include an electronic address and consider whether to impose any conditions on the use of this address;
- Consider how to inform shareholders about the new practices, procedures and documentation; and
- For e-communications into a company, consider what form of authentication the company requires of the identity of the sender.
The new provisions on e-communications will, for the most part, be welcome – not only for the potential for cost-savings to businesses but, by bringing clarity to company requirements to communicate information ‘in writing’ and whether, or not, this requires the use of paper.
However, it is worth noting that any savings could be effectively cancelled out by shareholders’ right to receive notification of posting on a website and paper copies of communications. In addition, companies may be faced with managing two communication systems if some shareholders do not agree to the electronic approach.