“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– a commitment to making life simpler for smaller companies by reducing the administrative burden and modernising outdated procedures.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 most private companies are now a thing of the past. The former opt-out system required all shareholders to pass an elective resolution to dispense with holding AGMs. This has been replaced from 1 October 2007 by an opt-in system whereby a private company only needs to hold an AGM if it chooses to (or its articles expressly require it to do so). (Note that a private company need not hold an AGM, even if its articles expressly require it to do so, if, immediately before 1 October 2007, there was an elective resolution in force to dispense with holding AGMs.)
A knock-on effect of this change is that from 1 October 2007 private companies have not had to lay annual accounts and reports in general meeting (although members must still be sent a copy) and their auditor need not be re-appointed in general meeting.
From 1 October 2007 it has been easier for private companies to pass written resolutions, as the former requirement for unanimity has been abolished and a new concept of ordinary and special written resolutions has been introduced. These are passed by a simple majority or not less than 75% 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 introduced in January 2007 applies to written resolutions too. Written resolutions do not have to be physically signed by a shareholder, it is enough for the company to receive an authenticated document that identifies the resolution and indicates the shareholder’s agreement.
Even if private companies decide not to make use of the simpler written resolution procedure, the Act has made it easier and quicker for all companies to hold shareholder meetings. From 1 October 2007 the notice period for general meetings (other than a public company’s AGM) has been 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.
From 6 April 2008 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 appointed, the secretary will have the same authority as is currently the case. If a secretary is not appointed, the directors will still have to allocate responsibility for carrying out company secretarial functions. (Public companies must still appoint a secretary.)
The period that companies have to keep records of directors’ and company meetings, resolutions and decisions has been reduced to 10 years for meetings held, resolutions passed or decisions taken on or after 1 October 2007. The period for keeping records in relation to former members has been shortened from 20 years to 10 years.
From 1 October 2009 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, that will never need to be updated. Companies will be deemed to have unrestricted objects (or powers), unless their articles specifically provide otherwise. Draft model articles for public companies and for private companies limited by shares and by guarantee have been published. In their final form these model articles will be the default articles for companies incorporated from 1 October 2009. Companies will still be able to adapt the model forms to their own requirements.
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” articles will continue to be Companies Act 1985 Table A (assuming that was the version of model articles in force at their incorporation). But if they want to take advantage of some of the streamlining 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
From 1 October 2008 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 financial assistance, such as giving a guarantee or providing security, in connection with the purchase of their shares by a third party.
The other 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. From 1 October 2009 the requirement for companies to have an authorised share capital will be abolished (an existing company’s authorised share capital is likely to be treated as a restriction in its articles removeable by ordinary resolution). As a result, it will be possible to create and allot shares by board resolution 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.
Is it in force?
The Companies Act 2006 received Royal Assent on 8 November 2006 and is being introduced via a staggered timetable. Some provisions were introduced in January and April 2007. A substantial part, including some of the more controversial provisions relating to directors’ duties and the new shareholders’ derivative action, went live on 1 October 2007. The remainder was expected to be phased in on 6 April and 1 October 2008. Whilst some provisions will still come into force on those dates, full implementation will not now occur until 1 October 2009. BERR (formerly DTI) has published a revised table of commencement dates taking into account the delays.
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