News

Changes to the Companies Act of the United Kingdom

The existing legislation which governs companies in the United Kingdom, the Companies Act 1985, has been under review for some time and has recently been superseded by the newly passed Companies Act 2006. The changes contained in the new act will be introduced over the following two years. The first set of provisions will come into effect as of the 1st of January 2007, followed by a second set of provisions taking effect from April 2007. The remain provisions will be implemented according to a timetable which is yet to be finalised.

In addition to introducing new provisions, the new act closely examines every section of the legislation and either amends or reinstates each aspect of the law relating to companies in the United Kingdom. The motivation for the new act is threefold: to codify existing common law principles, to comply with obligations under the European Union's takeover and transparency directives, and to introduce new provisions for private and public companies.

As this new act represents a thoroughly revised document, it is impossible to discuss each change here; rather, this page is designed to give an overview to the new legislation, while spotlighting those characteristics of the new legislation which are the most important for people doing business in the United Kingdom.

On this Page
Changes to the law with respect to the formation of a company Changes to the law with respect to directors Changes to the law with respect to shares and shareholders	Changes to the law with respect to the administration of a company Changes to the law with respect to public companies Implementation of European Union directives Useful links

Changes to the law with respect to the formation of a company 
The new legislation makes the following provisions with respect to the formation of a company:

• private companies may be formed by one person
• there is no requirement to appoint a secretary to a private company
• the same person may act as both a director and a secretary
• the memorandum of association is replaced by a simplified constitutional document
• the notion of authorised share capital is abolished
• a statement of capital and initial shareholders will be required
• the details of any person who is appointed as an authorised signatory must be provided upon formation

Changes to the law with respect to directors 
The new legislation makes the following provisions with respect to the directors of a company:

• corporate directors may only be appointed if there is at least one other director who is a natural person
• directors must register both a service, and a residential address with Companies House
• the minimum age for a director is sixteen
• a statutory statement with respect to the duties of a director has been introduced

The duties of a director of a company in the United Kingdom codified in the new legislation are as follows: to act within their 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, to declare interest in any proposed transaction or arrangement.

Changes to the law with respect to shares and shareholders 
The new legislation makes the following provisions with respect to the shares and shareholders of a company:

• it is now permitted to communicate with shareholders via electronic means
• a private company with only one class of shares may allot shares without shareholder authority
• shares may be issued as bearer shares without first being issued as registered shares
• shares may be expressed in any currency but must have par value
• shareholders are more easily able to take action against the directors for breach of duty or trust, or for negligence for a loss suffered but the company
• a shareholder may nominate a proxy to exercise all of the membership's rights on behalf of that member

Changes to the law with respect to the administration of a company  
The new legislation makes the following provisions with respect to the administration of a company:

• a register of the residential addresses of the directors must be maintained by the company
• a register of authorised signatures must be maintained by the company
• the register of members must be kept for ten years
• board minutes must be kept for ten years
• records and registers may be kept in an electronic form
• a private company is not required to hold an annual general meeting
• a default set of articles of association has been established for private and public companies, which will apply if not amended
• it is no longer possible to irreversibly entrench provisions into the articles of association: any article may be removed or amended by unanimous agreement of the members
• public companies are permitted to take advantage of voluntary strike-off provisions
• the accounts' filing date for private companies has been shortened to nine months
• in addition to the pre-existing requirements, the company's details (its name, place of registration, registered number, and registered office address) must also be disclosed on its website

Changes to the law with respect to public companies 
In the interest of greater shareholder involvement, a number of provisions have been made in the new legislation which engender new requirements for public companies.

The annual reports and accounts of those companies listed on the main board of the London stock exchange must now include:

• main trends and factors likely to affect future development, performance, and position of the business
• information on environmental matters
• information on employees
• information on relevant social issues

Those companies listed on the main board of the London stock exchange must hold an annual general meeting and file their accounts within six months of the end of the financial year. They must also:

• publish their annual report and accounts on their website
• publish on their website the results of any polled votes held at their annual general meeting
• publish the total number of voting rights with respect to each class of share which it issues

Implementation of European Union directives 
One of the motivations for thoroughly revisiting the companies legislation was to ensure that the legislation is fully compliant with the United Kingdom's obligations as a member of the European Union. The new act complies with two European Union directives: the transparency directive, and the takeover directive. In order to comply with these directives, the new act imposes obligations on public companies listed on the main exchange with respect to financial reporting, disclosure of acquisitions and disposals of its shares, and the dissemination of information to shareholders and the general public regarding the company.

In addition to including provisions which make the new act compliant with the European Union's directives, the act empowers the Financial Services Authority to add any other regulations to the existing listing and disclosure rules necessary to fully implement the directives.

Useful links 
A copy of the Companies Act 2006, along with explanatory notes, tables of destinations, and tables of origins, can be found in various formats at the following page: www.opsi.gov.uk/acts/acts2006a.htm

More information on the European Union's Transparency Directive can be found at the following pages:

www.hm-treasury.gov.uk/documents/financial_services/eu_financial_services/fin_eufs_trans.cfm
www.fsa.gov.uk/pages/About/What/International/EU/fsap/td/index.shtml

Added: 02/03/2007