The Companies Act 2006 is the biggest ever Act of Parliament with 1300 Sections. It introduces a new code of Company Law. This affects Directors, Auditors, Shareholders and Company Secretaries. Although the aim of the Act was to deregulate, some of the changes will involve extra work for Company Secretaries and Directors.
Most of the changes come into force by October 2008, but some are much sooner. Already by 31 December 2006, Companies must now disclose their Registered Name, Company Number, place of registration and Registered Office Address on their Company websites and on order forms.
The Act means a change to Company operations including changes to Board and Shareholder Meetings, Annual Reports and Accounts, the Company’s constitution and communications with the Shareholders.
Although obviously detailed advice is essential for each Company, some key points for action now are as follows:-
From January 2007 Companies will be allowed to make greater use of electronic communications. The aim is to make it easier for private Companies to conduct almost all business by written resolution. A simple majority vote will be needed to pass an ordinary resolution and a 75% majority for a special resolution. The resolution can be circulated to members electronically including for example by publication on a website. This should allow most small Companies to make decisions quickly and more economically without having to arrange a General Meeting.
Annual General Meetings will no longer be compulsory. Private companies will no longer need to place their accounts before an AGM, but Shareholders will still be entitled to receive the accounts.
Companies should now review their Articles of Association to see whether any amendments are needed. If so, appropriate resolutions could be prepared for the next AGM.
Quoted companies will be subject to more extensive take over and transparency provisions, including disclosure of major shareholdings and periodic financial reporting. For example, the expanded business review must include details about environmental matters, employees, social and community issues, and significant “supply chain” relationships.
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The Government is consulting in February 2007 on the implementing Regulations. Explanatory notes will be published giving guidance on how the changes are to be introduced. There will also be explanatory notes in plain English providing guidance for Directors.
The remainder of the changes were to be introduced in October 2007, but Companies have been given an extra year to prepare and most of the remaining changes will be brought in by October 2008.
Major changes by then include the codification of Directors’ duties, a new duty to promote the Company’s success, and improved rights to Shareholders.
The theme of the new laws is to deregulate business for small private Companies. For example there will be simplified default Articles for private Companies. All Companies will have unlimited objects unless they choose to restrict them. However there are extensive new obligations in other areas, for example, there is a new offence introduced for knowingly including misleading, false or deceptive matters in an audit report.
All Companies and their advisors will need to examine carefully how the new regime affects them. Specific legal advice should be taken by each Company on the impact of the legislation on them and also to capitalize on the new opportunities presented.
The final version of the Act is available on the website of the Government's Office of Public Sector Information – use the following link: www.opsi.gov.uk/acts/acts2006a
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