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Company Formation
(expected 1 October 2009) |
| The rules for forming a company will be simplified, with online incorporation and, for the first time, a full set of model articles for companies limited by guarantee (ss.7-20). |
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Company Constitution
(expected 1 October 2009) |
For new companies, a memorandum of association will be used only for setting up the company. All operational provisions, including the objects, will be included in the articles of association. For existing companies, most of the provisions in the memorandum will be treated as if they were in the articles (ss.8, 17-20, 28).
All new companies will be assumed to have unrestricted objects, unless the articles specifically restrict them. Charitable companies must have restricted objects, and some community interest companies may choose to do so (s.31).
Anything in the articles will be able to be amended by special resolution. But certain amendments by charitable companies will continue to require prior consent from the Charity Commission. (s.21).
Any company will be able to designate parts of the articles as entrenched provisions, which can only be amended if certain conditions are met or certain procedures are complied with. These conditions or procedures have to make it harder to change the articles than with a special resolution, but they cannot completely prohibit amendment. The entrenchment provisions could be used, for example, by a non-charitable not-for-profit company which wants to entrench its not-for-profit provisions so they cannot easily be changed (ss.22-24).
The concept of a company constitution is being introduced. This includes not only the articles (or the Memorandum and Articles of existing companies) but also certain resolutions that are specified in the Act as resolutions affecting a company's constitution. Such resolutions will have to be sent to the Registrar of Companies, and every copy of the articles issues by the company will have to be accompanied not only by these resolutions, but also by copies of enactments (legislation) affecting the articles, and any alterations made to the articles by a court or by another authority such as the Charity Commission. The accompanying materials do not have to be provided if those provisions have already been incorporated into the articles (ss.29-30, 32-36).
An example of a resolution affecting a company constitution would be a resolution allowing information required under the articles or company law to be provided to company members via a website (see Company Communications).
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New Reason for Objecting to a Company Name
(expected 1 October 2008) |
| A person who has goodwill in a name will be able, in some circumstances, to object if someone registers a company with a similar name (ss.69-74). |
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Company Name
(expected 1 October 2009) |
| The Business Names Act 1985 will be repealed and replaced by the Companies Act (ss.1192-1208). It will be possible to change the company's name without a special resolution if the articles allow for this (ss.77-81). |
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Access to Register of Company Members
(expected 1 October 2008) |
The register of company members (members of an organisation) will have to be open for inspection every working day. The current right to close it to the public for up to 30 days per year will no longer exist.
The public will have a right to inspect the register of members and to be provided with copies only if they are doing so for certain purposes which will be specified in the regulations; the rights will not be absolute as they are now. Anyone who wants to inspect or be provided with a copy of the register of members will have to provide their names and addresses, the purpose for which the information will be used, and, if the access is sought on behalf of others or the information will be disclosed to anyone else, similar details for them. The company can apply to the court if it thinks the information is not going to be used for a proper purpose (ss.116-120).
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Removal of Former Members from the Register of Members (expected 6 April 2008)
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| Entries of former company members can be removed from the register after 10 years, rather than the current 20 (s.121). |
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Member's Rights (expected 1 October 2008)
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| The articles will be able to include provisions allowing a company member to nominate someone else to exercise or enjoy the rights of company membership, such as the right to notice of general meetings (a.145). |
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Minimum Age for Company Directors
(expected 1 October 2008) |
| Company directors will have to be at least 16 years old. They can be appointed before this, provided the appointment does not take effect until they are 16 or provided the appointment is for the specified reasons set out in the regulations. any director who is under 16 when the minimum age provision comes into effect will automatically cease to be a director. The Register of Directors will have to be amended accordingly, but Companies House will not have to be notified (ss.157-159). |
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Director's Addresses
(expected 1 October 2009) |
| All directors will be able to use a service address (i.e. an address where legal papers may be served), rather than their private home address, in the register of directors and in the company's public records at Companies House. The service address can be the company's registered address or another address. All companies will have to keep a register of director's residential addresses but unlike the register of directors, this will not be open to the public (ss.240-246). |
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General Duties of Directors
(expected 1 October 2007, except conflict of interest duties expected 1 October 2008) |
For the first time there is a statutory statement of the duties of company directors. These are: to act within powers; to promote the success of the company; to exercise independent judgement; to exercise reasonable care, skill and diligence; to avoid conflicts of interest; not to accept benefits from third parties; and to declare interest in a proposed transaction or arrangement (ss.170-181).
The second duty, to promote the success of the company, generally means for the benefit of the members (shareholders in a company limited by shares). But for charitable companies, non-charitable voluntary sector companies and community interest companies - where the purpose of the company is not to make money for shareholders - "promoting success" means success in achieving the company's purposes. In promoting the success of the company, directors have to consider the long-term implications of their decisions, and have to take into account the interests of employees, suppliers, customers and the environment (s.172).
There are detailed requirements for declaring an interest in an existing transaction or arrangement (ss.182-187) and for transactions between the company and a director (ss.188-226). These duties apply differently in charitable companies.
The director's statutory duties reflect common law duties, but in some cases use different terminology which could lead to problems in interpretation.
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Minutes of Directors' Meetings
(expected 1 October 2007)
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| There will be a new requirement for minutes of directors' meetings to be kept for at least 10 years (s.248). |
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Connected Persons
(expected 1 October 2007) |
| The definition of "connected person" will be extended to include the director's parents, children or step-children of the director who are over 18 years old (those under 18 are already included under section 346 of the 1985 Act), persons with who the director lives as partner in an enduring family relationship, and children or step-children of the director's unmarried partner if they live with the director and are under 18 years of age (ss.252-253). |
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Derivative Claims
(expected 1 October 2007) |
| A new provision for derivative claims will allow a company member to bring a claim, on behalf of the company, against one or more directors for failure to comply with their statutory duties as directors. Before such a claim can proceed, the member will have to obtain consent from the court (ss.260-264). |
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Company Secretary
(expected 6 April 2008) |
| Private companies (which the vast majority of voluntary sector companies are) will no longer have to appoint a company secretary unless this is required by the articles (but these can be amended to remove the requirement). but the duties of the company secretary will still have to be carried out, either by a director or directors or by a person or persons authorised generally or specifically to do so by the directors (s.270). |
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Resolutions and Company Meetings
(expected 1 October 2007) |
Private companies will no longer have to hold an annual general meeting or other general meetings, unless company members want them or where there is a resolution to remove a director or auditor before the end of their term (ss. 281-287). However, for many voluntary sector companies it will still generally be good practice to hold AGMs. AGMs and other general meetings will require only 14 days notice, instead of 21 days as currently required for AGMs and general meetings where a special resolution is being proposed.
Instead of being made a general meetins, decisions by company members will be able to be made by written resolution. These will no longer require 100% agreement by everyone entitled to vote. The requirements for written resolutions will be the same as for resolutions passed at a general meeting, i.e. more than 50% of the vote for an ordinary resolution and at least 75% for a special resolution. Where the company allows electronic communications, agreement can be given electronically. Unless the articles specify otherwise, there will be a cut-off period 28 days after the resolution is circulated; if the resolution does not have enough votes by the cut-off date, it will not be passed (ss.288-300).
New rules for proxies will give every company member a statutory right to appoint a proxy for general meetings, even if the articles explicitly say that proxies are not allowed. This could have a significant impact on voluntary sector companies, especially those with a large membership (where there could be a lot of additional admin) and those which value face-to-face decision-making at meetings (which could be distorted by the use of proxies). Proxies will be allowed to vote in meetings on a show of hands as well as on a poll (written vote) (ss.324-331).
The Act includes detailed provisions for general meetings (ss.301-335). One such provision is that where a company gives an electronic address in a notice calling a meeting, any document or information relating to proceedings at the meeting - such as proxies - may be sent by electronic means to that address unless the notice specifies otherwise (s.333).
Records of written resolutions and general meetings will have to be kept for at least 10 years, rather than throughout the life of the company and beyond as at present (ss.355-359).
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Accounts and Reports
(expected 6 April 2008, except ss.417 and 463) |
There will be a new duty on company directors not to approve the company's annual accounts unless they are satisfied the accounts give a true and fair view of the company's (or the group's, in the case of group accounts) assets, liabilities, financial position and profit and loss (s.393).
The directors' report must, except for small companies, include a business review setting out how the directors have complied with their duty to promote the success of the company (s.147).
Private companies will no longer have to lay their annual accounts and reports at an AGM and send them to members 21 days before the AGM. Instead, the accounts and report or summary financial statement must be sent to all members for whom the company has a current address, and to certain other people, no later than the date the company has to file the accounts at Companies House or, if earlier, the date when the accounts are actually delivered to Companies House (ss.423-429). For many voluntary sector companies it will still be good practice to send out the accounts before an AGM or other general meeting, and to present the accounts at the meeting.
The accounts will have to be filed at Companies House within nine months (reduced from 10 months) after the end of the relevant accounting reference period. If the relevant accounting reference period is the company's first and is a period of more than twelve months, the filing deadline is nine months from the first anniversary of the incorporation of the company, or three months after the end of the accounting reference period, whichever is later (s.442).
A director is liable to the company for loss it suffers as a result of an untrue or misleading statement in the directors' report (but only if the director know or was reckless as to whether the statement was untrue and misleading), or loss arising from the omission from the report of anything required to be included (but only if the director dishonestly concealed a material fact). Under this provision, a director cannot be held liable to any other person (s.463). (In effect from 20 January 2007).
Commentators call this provision safe harbour because directors will not be liable to the company if they include in their report information about, for example, future plans which do not come to fruition and thus cause a loss to the company, nor will they be liable for losses suffered by third parties, such as investors in a commercial company. The safe harbour provisions do not apply to statements that are in a document other than the directors' statutory report, nor do they exempt the directors from criminal liability or civil penalties. |
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Auditors' Term of Office
(expected 1 October 2007) |
| Where a private company has an auditor, their term of office will generally run from 28 days after circulation of the accounts until the end of the corresponding period the following year. This will apply even if the auditor is appointed at a general meeting where the company's accounts are laid. Unless the company decides otherwise, an auditor will be deemed to be re-appointed at the end of their term of office (ss.485-488). |
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Auditors (expected 6 April 2008)
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Where the audit is carried out by a firm rather than an individual, the firm's senior statutory auditor (a new position) must sign the audit and his or her name must be on all copies of the audit report circulated by the company (ss.503-506).
New provisions will allow for liability limitation agreements under which a company and its auditor can agree to limit the auditor's liability to the company. Such an agreement cannot be for more than 12 months, and will be valid only if it is fair and reasonable (ss.532-538).
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| Company Records |
| A company will be able to keep its records electronically provided the records can be printed out on paper. procedures must be put in place to protect records on paper (unless they are in bound books) and electronic records from falsification. If the appropriate regulations are made, it will be possible for records that have to be accessible to the public (such as Register of Directors) to be kept somewhere other than the company's registered office (ss.1134-1138). These provisions will come into effect along with the provisions for specific records. |
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| Many thanks to Sandy Adirondack, Writer of the Legal Update for Voluntary Organisations, Trainer, and Consultant on Governance and Law for the Voluntary Sector. |
