The Companies Act 2006

Transcription

1 The Companies Act 2006 Frequently asked questions for private companies 16 Old Bailey, London EC4M 7EG tel: +44 (0) fax: +44 (0)

2 The Companies Act 2006 Frequently Asked Questions for Private Companies 1. Is it true that we no longer have to have an annual general meeting? Since 1 October 2007, there has been no need for a private company to hold an AGM, unless, unusually, required to do so by its articles of association. Many private companies will already have passed elective resolutions to dispense with the need for an AGM and, if this has been done, no further action need be taken. Some of our clients, particularly charitable companies, have expressed a wish to continue holding AGMs, in which case they will have to review their articles. 2. What is changing regarding shareholders meetings? Companies will still be able to hold general shareholders meetings as before. However, it will usually only be necessary to give 14 (rather than 21) clear days notice of any meeting and proxies will have improved rights. We anticipate that private companies will hold fewer shareholders meetings. Since October 2007, written resolutions of shareholders have no longer required the consent of all the shareholders, merely the majority required to pass the resolution as if it had been put before a meeting (a simple or 75% majority, depending on the type of resolution). 3. Have proxies been given more rights? Since 1 October 2007, proxies have been given a statutory right to vote on a show of hands. A member is able to appoint more than one proxy to attend a meeting on his behalf, up to a maximum of one proxy per share. Any provision in a company s articles that provides that a member voting by proxy has fewer votes will be invalid. 4. Everyone is talking to me about changes in directors duties. Has anything really changed in practice? The Companies Act 2006 has, for the first time, introduced a written statement of directors duties, which came into effect on 1 October Generally, these are based on the pre-existing duties which applied to directors, but in some cases go further. For example, there is a new duty to promote the success of a company for the benefit of its members, and in doing so to have regard to its employees, business relationships and its impact on the wider community and the environment. From 1 October 2008, directors (as well as shareholders) of newly incorporated companies will be able to authorise a director s conflict of interest, unless the articles of association preclude it. Existing companies will need shareholder approval to be given in order for directors to be generally able to authorise a conflict. Please note that interests in transactions or arrangements with a company are catered for separately and give rise to a disclosure obligation. 2

3 5. What are the new provisions regarding companies making loans to directors? Shareholders may now approve loans to directors provided that a note has been circulated to them disclosing the nature of the transaction, the amount of the loan, the purpose for which it is required and the extent of the company s liability under any transaction connected with a loan. Companies are, without shareholder approval, allowed to fund directors proper expenditure as part of their duties up to an amount of 50,000. There is also an exception for certain transactions if their value is less than 10, How have the rules regarding substantial property transactions changed? A company can now enter into a substantial property transaction with a director or connected person conditional on shareholder approval (previously, prior shareholder approval was required before a contract could be entered into). The de minimis threshold for approval has been lifted from 2,000 to 5,000. Transactions with companies in administration are now excluded. 7. Have the rules for directors fixed-term contracts changed? Shareholder approval is now required for all contracts with a fixed duration of 2 years or more, rather than 5 years. 8. Is it true directors can keep home addresses confidential? Yes. Previously, it was only possible for directors to keep their home addresses confidential if they faced a risk of violence or intimidation. However, with effect from 1 October 2009, directors, to the extent that their addresses are not already on the public register, will be able to keep their home address on a separate, secure register at Companies House. However, they will still have to provide the company with a service address (which could, for example, be the company s registered office). 9. Is there going to be a prohibition on under-age directors? From 1 October 2008, a new minimum age of 16 will be introduced for directors and any director under 16 years of age will cease to be a director and the company must update its statutory registers. 10. My company only has corporate directors. Does this need to change? From 1 October 2008 a company must have at least one director who is a natural person. There will be a grace period until 1 October 2010 for companies which did not have a natural person as a director on 8 November 2006, otherwise all companies must have a natural person as a director. 11. Is it easier for shareholders to make claims against directors? Probably, yes. Shareholders may bring a claim against a director where there is an actual or proposed act or omission which is negligent or constitutes a breach of a director s duty or a breach of trust. Directors can be sued for negligence even if they have not personally profited 3

4 from it. To prevent spurious claims, shareholders would need the consent of a court to bring a claim, the claim must be made on behalf of the company and any damages awarded would be owed to the company. Importantly, a guilty director cannot, as a shareholder, block a claim by ratifying his own actions. 12. I am told I will not need to have a company secretary any more. Is this true? Generally, yes. From 1 April 2008 the requirement to have a company secretary will be abolished, unless the articles of association provide otherwise. However, you can still choose to retain a company secretary since the administrative functions of a company secretary will remain. We expect most companies to retain the company secretary role. 13. I have heard I need to do something with my website? Yes, you may do. You now need to include your company s name, number, registered office and place of registration on your website, as well as on all business letters, order forms and other documents (whether in hard copy or electronic form). 14. Is it true that we can now use our website for all communications with our shareholders? Yes, provided certain steps are taken first. Previously there was some uncertainty as to what could be communicated to shareholders via a company s website. The Companies Act 2006 makes clear that all communications to shareholders can now be made via the company s website or be ed to them. This does, however, require the consent of the shareholder concerned (which will be deemed if the shareholder fails to respond to the contrary within 28 days of being asked) and either a change in the company s articles of association or shareholder approval at a general meeting. Shareholders will still have the right to demand hard copies. 15. We have heard that our auditors can now limit their liability? From 6 April 2008, if shareholders consent, auditors will be allowed to agree a limit to their liability which is fair and reasonable, bearing in mind their role and responsibility. 16. I understand the period for filing accounts is going to change, is this correct? Yes. From 6 April 2008, private companies will have to file their accounts with the Registrar of Companies nine months (as opposed to ten months) after the end of the relevant accounting period. 17. Has the law on financial assistance changed? Yes. From 1 October 2008, private companies will be allowed to give financial assistance for the purchase of their own shares without having to rely on the whitewash procedure. However, companies should be aware that the common law rules on maintenance of capital have not been overruled and could, in certain circumstances, prevent companies giving financial assistance in relation to the acquisition of shares in the company. 4

5 18. Is the concept of authorised share capital being abolished? From 1 October 2009, a new company will no longer be required to state its authorised share capital ( ASC ) in its memorandum of association. Instead, on incorporation it must file an initial statement of capital, which will then need to be updated when new shares are issued. A company may choose, in its articles of association, to impose a limit on the number of shares which it may issue. The ASC of an existing company will be regarded as forming part of its articles of association (due to the changes to the memorandum of association, as explained in paragraph 27 below). Therefore existing companies will need to amend their articles if they wish to remove their ASC. 19. Our shareholders are worried that the directors will be able to issue shares without their consent which will result in a dilution of their shareholdings. The new rules, which will apply from 1 October 2009, should not generally result in any increased risk of dilution of your shareholding since most articles of association include pre-emption rights to protect shareholders against dilution. What is changing is that directors of private companies will be able to issue shares without shareholder approval if the company has only one class of shares, unless the articles provide otherwise and subject always to any rights of pre-emption. If the company has more than one class of shares, the directors will require authority by an ordinary resolution or by the articles of association in order to allot new shares. This permission can no longer be indefinite but will last for a maximum of 5 years. As mentioned above, the concept of authorised share capital is also being abolished so there will be no limit on new share issues authorised by directors, unless the articles impose one. We expect most private companies to retain full pre-emption rights (and to exclude the more limiting statutory pre-emption rights) so that shareholder approval will be needed for any new issue of shares unless they are first offered pro-rata to existing shareholders. If no pre-emption provisions are included in a company s articles, existing shareholders risk dilution, for example, from the grant of employees share options and share for share acquisitions. 20. What has changed regarding the reduction of share capital? From 1 October 2008, a private company may reduce its share capital by passing a special resolution. This must be accompanied by a solvency declaration made by each of the directors. A company will no longer need to obtain the approval of the court. 21. I have heard that the directors will have the power to change the company s name without shareholder approval. Yes. This will be possible from 1 October 2009 so long as the board is given the power to do so under the articles of association. An existing company will need to amend its articles to permit the board to do this. 5

6 22. Is it true that shareholders can nominate someone else to enjoy their rights? The new Act allows companies to include a provision in their articles permitting shareholders to nominate another person or persons to enjoy or exercise all or any of their shareholder rights, including a right to vote. 23. What has changed regarding corporate representatives? The new Act expressly provides that more than one representative may be appointed on behalf of a corporation to act at shareholders meetings of any other company in which it owns shares (previously this was allowed but never expressly stated in the 1985 Act). The new Act provides that any one of them may vote and exercise its powers on the corporation s behalf, but if there is a conflict in the way each representative votes, the corporation will be deemed to have abstained from voting, and the votes will not count. This tends to be more of an issue for public companies and the Institute of Company Secretaries and Administrators has published guidance on a suggested procedure to ensure that the votes of multiple corporate representatives are taken into account. 24. Who can inspect our register of members? Anybody (ie not necessarily a shareholder). However, if a person wishes to access a company s register of members they will need to disclose their name, address and the purpose for which the information will be used. A company can then apply to court to refuse a request, which may be granted if the purpose is improper. These provisions will apply to a company as soon as it has filed its annual return made up to a date after 30 September Is there anything new about the content of a company s accounts? For financial years commencing on or after 1 October 2007 the directors report must generally contain a business review, the purpose of which is to inform the company s shareholders and help them assess how the directors have performed their duty to promote the success of the company. The business review must include a fair review of the company s business and a description of the principal risks and uncertainties facing the company. Key performance indicators should be used where necessary for an understanding of the company s business. If a company satisfies the definition of a small company, its directors report need not contain a business review. Directors are now liable to compensate a company for any loss suffered by it as a result of any untrue or misleading statement in a directors report, or any omission of information which should have been included. 26. Do we really need to update our articles of association? Generally, no. You will be able to continue with your existing constitution. However, all new companies will have to operate under the new regime set out in the Companies Act 2006 and in order for existing companies to take advantage of many of the new rules, they will need to amend 6

7 their articles of association. Also, if a company s articles contain any unusual provisions, it may be necessary to amend them in order for them to remain workable. A new set of model articles for private companies to replace Table A will be introduced in October The model articles will be default for companies incorporated on or after 1 October Existing companies can choose to adopt them if they so wish. As is usually the case now, it is likely that companies will choose to incorporate some parts of the model articles but will also set out their own provisions separately. 27. What will happen to our memorandum of association? With effect from 1 October 2009, all new companies will have the same form of memorandum of association, which will simply set out the names of the subscribers and the number of shares for which they are subscribing. There will be no objects clause in the memorandum and all new companies will be deemed to have unrestricted objects unless the articles of association specifically restrict them. In the case of existing companies, any provision in their memoranda of association will be deemed to form part of the articles (save for details of the subscribers), for instance their ASC. Existing companies may consider passing a resolution to make their objects unrestricted. Previously, companies were able to entrench provisions in their memoranda of association, that is, provide that they could not be altered in any circumstances. In future the memorandum can no longer include such provisions. Companies incorporated on or after 1 October 2009 will not be able to entrench provisions absolutely. However, certain provisions of the articles may be conditionally entrenched, that is, they would require particular procedures to be complied with or certain conditions to be met, which would be more onerous than those applicable in the case of passing a special resolution, for example, by requiring consent of 90% of the voting rights of members. Such entrenched provisions would need to be included in the articles of association on incorporation or be agreed to by all the members. These FAQs are intended as an outline guide only. They are not intended to be exhaustive and reliance should not be placed upon them without seeking more detailed advice in the light of your own circumstances. These FAQs are based on English law and practice some of which is in force at the date they were prepared and some of which is due to be implemented in the future. As legal provisions change frequently any comment in these FAQs should be reconfirmed before any action is taken. 7

8 To find out more If you would like to know more about the Companies Act 2006 changes or about our firm and our areas of expertise, please visit our website at For specific advice relating to the Companies Act 2006, please contact your usual Withers contact or Tim Taylor, Ben Simpson or Paul McGrath: Tim Taylor +44 (0) Ben Simpson +44 (0) Paul McGrath +44 (0) Withers LLP, April 2008 The information and comments contained herein are for the general information of the reader and are not intended as advice or opinions to be relied upon in relation to any particular circumstances. For particular application of the law to specific situations, the reader should seek professional advice. 16 Old Bailey, London, EC4M 7EG, tel +44 (0) , fax +44 (0) Withers LLP London Geneva Milan Withers Hong Kong Withers Bergman LLP New York Greenwich New Haven 8