The Companies Act 2006 (“the Act”) is the longest act ever to be passed, consolidating and repealing about three quarters of the 1985 Act.
Some of the changes in the Act override what is in a company’s constitution. Other changes are “enabling” changes so companies can, but do not have to amend their constitutions to take advantage of the new provisions. This is a brief guide to some of the most important changes made by the Act applicable to Trade Associations.
Company’s Constitution
There have been substantial changes to the two key documents of a company’s “constitution”, its memorandum and articles of association. All the provisions of the memorandum (except for the details of the subscribers) are now treated as forming part of the articles. For existing companies these changes will only be relevant when it amends its articles of association.
Company Secretary
A private company is no longer required to have a secretary, although it is still possible to have one. However, if a company’s articles contain a specific provision for a company secretary or assume it has one, the company must amend its articles before it can take advantage of the new provision.
Directors
Companies are required to have at least one director who is a natural person. There is a minimum age of 16 for directors. The age limit of 70 for directors has been repealed.
Directors’ Duties (Overriding)
Until now, the duties a director owes to the company have come from a mixture of legislation and case law. Now, for the first time, there is a detailed checklist of general duties owed by a director to the company. The new duties are largely intended to reflect the existing law. However, they are not identical because the terminology used differs e.g. the duty to act in the best interests of the company has been revised to a duty to promote the success of the company. Under the Act a director’s duties are:
- to act within powers;
- to promote the success of the company for the benefit of its members as a whole including:
– considering the impact of a company’s actions on the interests of the employees
– the need to foster business relationships with customers/suppliers
– considering the impact of the company’s actions on the community and environment
- 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 an interest in proposed transactions or arrangements. This will be new and is in addition to the existing duty to declare an interest in existing arrangements.
These duties are owed to the company and only the company can enforce them.
Confidentiality of Directors’ residential addresses (overriding)
Directors can now submit a service address, which will be available on the public register, as well as their residential address which Companies House will keep on a secure register. The company will need to keep a public register of directors which will contain the service addresses as stated at Companies House and a secure register which will not be open to public inspection, containing the residential addresses of each director.
Meetings and Resolutions
Annual General Meeting
There is no longer provision for private companies to hold an annual general meeting. However, any companies with provision in their articles for an annual general meeting will still have to hold one.
Notice
Where a general meeting is being held for the purposes of passing a special resolution, the period of notice required is reduced from 21 days to 14. If a company’s constitution specifies 21 days then it will have to be changed to take advantage of the shorter notice period.
Proxy Voting (overriding)
Every member has a right to appoint a proxy to vote on their behalf at a meeting. This applies even if the company’s articles specifically prohibit proxy voting. Every notice of a meeting must include a prominent statement of the right to appoint a proxy – failure to do this is a criminal offence committed by every director of the company, although the validity of the meeting is not affected.
Companies which are new to proxy voting should equip themselves with wording to include in notices of meetings. A company should also consider tailored provisions in their articles dealing with some of the mechanics of proxy voting (e.g. timescales for notifying appointment and termination of proxies). However, there are default provisions in the Act.
Written Resolutions
Since 1 October, subject to anything to the contrary in the articles, written resolutions no longer require unanimous approval. Instead, the percentage of members needed to pass a written resolution will depend on the type of resolution being passed (in the same way as resolutions at meetings).
- For ordinary resolutions, approval is required from a simple majority of the members eligible to vote.
- For special resolutions, approval is required from not less than 75% of the members eligible to vote.
Electronic Communications with Members
Electronic Communication by Members to the Company
Members can communicate with a company electronically provided the company has agreed, either generically or specifically, to a document being sent electronically (or is deemed to have so agreed by a provision of the Companies Acts) and it is sent to an electronic address specified by the company for that purpose. If the articles prohibit the above or restrict it to certain documents then the company should consider amending its articles.
Electronic Communications by a Company to its Members
A company can send documents to its members as long as the member has agreed, either generically or specifically, to it being sent electronically and it is sent to an electronic address specified by the recipient for that purpose. Companies wanting to send documents by this method should make sure they have the individual member’s consent.
Communications by the Company on its Website
A company can communicate with its members via its website if:
- the members have passed a resolution allowing the company to send documents to members by making them available on the website (such a resolution must be filed at Companies House) or the company’s articles contain a provision to that effect; and
- the recipient has been asked individually by the company to agree to receiving such communication. If the recipient does not respond within 28 days, he will be taken to have agreed; and
- the company notifies the intended recipient (electronically if the recipient has agreed to electronic communications) of the presence of the document or information on the website; and
- the company keeps the document or information available on the website for a period of not less than 28 days after notifying the recipient.
Companies should consider whether they need to use their next AGM to obtain permission from their members to amend their articles to allow for communication via its website.
Disclosure Obligations (Overriding)
A company is now required to include the company’s name, registered number and registered office on its website, as well as on its business letters and order forms in both hard copy and electronic form.
Accounts and reporting (Overriding)
Periods for Filing Accounts
The period for filing accounts is reduced from ten months from the end of the relevant accounting reference period to nine months for private companies.
True and Fair View
The directors must only approve accounts once they are satisfied the accounts give a true and fair view of the assets, liabilities, financial position and profit or loss of the company.
Members Approval
Private companies no longer have to place their accounts before the members at the AGM. However, a company must send a copy of its annual accounts and reports to every member not later than the deadline for filing the accounts or, if earlier, before they are filed at Companies House.
Execution of Documents (Overriding)
Instead of needing two authorised signatories, it is now possible for a deed to be signed on behalf of the company by a single director of the company in the presence of a witness who attests the signature.
Companies House Forms
Companies House forms have all been renamed and updated as of 1 October 2009. For example, Form 288a (appointment of directors) is now called AP01. Make sure you check that you are using the up to date forms which are all available on the Companies House website.
Do you need to do anything?
There is no legal requirement for a company to change its constitution. However, at the very least a company should be aware of those changes that override what is in its constitution. A company should consider reviewing its constitutional documents to identify areas that need changing to take advantage of or reflect provisions in the Act. It is also recommended that companies:
- Check that the company website, emails and order forms contain the company name and other particulars.
- Review the company’s practice in relation to communication between members and directors and consider amending the articles of association.
SOURCES OF MORE INFORMATION
Companies House forms and guidance, model articles and Companies House FAQ – click here
FAQ and guidance on the Companies Act 2006 – click here
Philippa Hart
Bates Wells & Braithwaite
3 March 2010