The act affects companies of all sizes, setting apart smaller companies with a focus on relieving their administrative strain. Many procedures that companies of all sizes are expected to follow have been eliminated for smaller companies, and therefore no longer apply.
Key changes have been made to the responsibilities of directors and the involvement of shareholders. Rather than a vague suggestion of what the duties of directors should be, their obligations are specifically outlined in the act. Their principal concern is ‘to act in a way which they consider most likely to promote the success of the company for the benefit of its shareholders as a whole’. Correspondingly shareholders’ involvement in the company has been expanded.
The act also gives attention to the facilitation of starting new companies, and also to the sharing of information with clients online.
The act will affect secretaries, directors, auditors and shareholders, among other members of the company.
The following is a brief summary of some key points of the new Companies Act.
- A company secretary is no longer a legal requirement, but if a company chooses to retain one, his/her status will remain the same.
- Where a company was previously required to display its name, there is now a requirement for the company’s place of registration, registration number and the address of its registration offices to also be on display.
- A company must now have at least one natural person as a director. This means that a whole company cannot act as director of another, there must be a named person as a director.
- The new minimum age for directors is 16.
- Loans to directors are no longer prohibited, but this can be overridden subject to member approval.
- If a director wants to make a transaction they now need only disclose their interests to the board, rather than to shareholders.
- Service addresses are now acceptable in place of residential addresses for directors. Residential addresses will still be required, but will, in most cases, remain undisclosed.
- Consolidated accounts are now required from both medium-sized and large companies, nine months, instead of ten, from the year end.
- Directors will now require authorisation for allotting shares of a new class, and this will be for a maximum of five years.
- New companies are no longer required to specify their authorised share capital, but can provide a statement of capital or a statement of guarantee instead.
- Authorised share capital has now been abolished for new companies. For existing companies, it will continue to operate as a restriction in the articles, acting as a ceiling on the number of shares that can be allotted, unless the existing companies amend their articles.
- Subject to provision in the articles, directors can now allot further shares without prior authorisation from members.
- Private companies can now give financial assistance for the purchase of their own shares.
- Shareholders now have the right to appoint up to one proxy per share held at meetings.
Whilst some of the legislation in the Companies As 1985 will be retained, the changes are significant, and at over 700 pages including almost 1300 sections, the new Companies Act 2006 is one of the most extensive ever published. The law will come into force in stages until October 2008, when it will be implemented in its entirety. Legal advice is recommended to establish changes that will need to be made in order to comply with the new company laws.
Telephone Meadows Fraser on 01932 852057 to ascertain how the act will affect you and your company.