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Companies Act 2006 Introduction You   may   be   aware   that   in   the   latter   part   of   2007   the   Companies   Act   2006   became   law.      This   Act   is   said   to   be   the largest single piece of legislation ever enacted in the UK with some 1300 sections and 16 schedules.   The   purpose   of   this   newsletter   is   to   highlight   the   key   issues   arising   from   the   Act   and   its   impact   on   the   day-to-day operation of your company. In   principle   the   Act   attempts   to   simplify   and   clarify   the   way   in   which   companies   operate   with   a   specific   focus   on small   private   companies.     As   in   most   cases   where   new   legislation   is   introduced   with   the   objective   of   simplification,   it is   debatable   to   what   extent   this   has   been   achieved,   especially   in   the   short   term,   when   advisors   and   company officers   will   have   to   come   to   terms   with   transitional   procedures   and   an   implementation   timetable   which   will   see   the various   provisions   take   effect   in   stages   during   2007   and   2008.      In   addition   much   of   the   detail   of   these   changes   will not be determined until the relevant secondary legislation is introduced. Because   of   the   complexity   of   the   Act   this   newsletter   can   only   concentrate   on   the   key   changes   that   will   take   place which are likely to affect private companies. Electronic Communications (Effective date 1 January 2007) As    previously    referred    to    in    our    earlier    newsletter    all    electronic    communications    (principally    e-mails    but    also applicable   to   text   messages   etc)   must   include   details   of   the   company’s   full   name,   place   of   registration,   registered office   and   registered   number.      Similar   provisions   apply   to   company   websites.      Limited   liability   partnerships   are   also bound by these requirements, breach of which will incur a fine of up to £1,000. Directors’ Shareholdings (Effective 6 April 2007) There   will   no   longer   be   a   requirement   to   maintain   a   register   of   directors’   (and   their   close   relatives’)   shareholdings although   for   practical   purposes   some   record   will   be   needed.      There   is   also   no   need      to   disclose   such   shareholdings in   directors’   reports   signed   after   6 April   2007,   and   you   will   have   noticed   that   this   information   has   not   been   included   if your accounts have been recently completed. Annual General Meetings (Effective 1 October 2007) There   will   no   longer   be   any   requirement   to   hold   an   annual   general   meeting   or   indeed   any   other   meeting   at   which shareholders   are   physically   present,   except   in   respect   of   resolutions   to   remove   a   company   director   or   the   company auditors. Written Shareholder Resolutions (Effective 1 October 2007) Most   resolutions   to   be   considered   by   shareholders   will   be   able   to   be   passed   by   written   resolution.      Written resolutions   will   require   the   approval   of   a   simple   majority   (ordinary   resolutions)   or   75%   (special   resolutions)   of   those eligible to vote. Directors   Duties    (Effective   1   October   2007   except   statutory   duty   to   avoid   conflicts   of   interest   which   becomes effective 1 October 2008) Perhaps   the   most   significant   change   is   that   the   duties   of   directors   which   have   built   up   over   the   years   via   case   law have been clarified, expanded and will be codified as statutory obligations as follows:- Must   only   act   within   appropriate   authority,   i.e.   in   accordance   with   the   company’s   Articles   of   Association   and decisions taken by the company’s members. Must promote success of the company for shareholders’ benefit. Must exercise independent judgement and use reasonable care, skill and diligence. Conflicts   of   interest   should   be   avoided,   personal   benefits   should   not   be   accepted   from   third   parties   and personal   interests   in   proposed   transactions   or   arrangements   with   the   company   must   be   declared.      Note   that directors   will   not   be   deemed   to   have   breached   the   first   or   second   of   these   duties   if   authorisation   has   been provided   by   independent   directors   or   the   shareholders   respectively,   nor   will   a   director   be   deemed   to   have breached the third duty if the other directors were already aware of the interest. Must   consider   long-term   consequences   of   any   decision,   the   interests   of   the   company’s   employees,   the   impact of   the   company’s   operations   on   the   environment   and   community,   the   need   to   act   fairly   as   between   the members,   the   need   to   maintain   high   standards   of   business   conduct,   the   interests   of   creditors   and   the   need   to foster business relationships with suppliers, customers and others. The Act   also   eases   the   procedure   for   action   to   be   taken   for   breaches   of   the   above   duties.      One   relaxation,   however, is    that    the    previous    prohibition    on    loans    to    directors    is    removed    provided    such    loans    are    approved    by    the shareholders.      (NB   This   relaxation   does   not   extend   to   the   adverse   tax   implications   of   loans   to   directors   which continue to apply unchanged.) Accounting Records (Effective 1 October 2007) The   requirement   under   the   Companies Act   1985   to   keep   “proper”   accounting   records   is   replaced   with   a   requirement to   keep   “adequate”   accounting   records.     A   new   statutory   duty   is   also   imposed   on   directors   to   approve   only   accounts that   give   a   true   and   fair   view   of   the   company’s   assets,   liabilities,   financial   position   and   profit   or   loss   (thus   clarifying the   previous   legal   position   under   which   company   accounts   had   to   be   prepared   to   show   a   true   and   fair   view   or    be prepared in accordance with International Accounting Standards). Group Accounts (Effective 1 October 2007) The   previous   exemption   for   medium   sized   companies   from   the   requirement   to   produce   group   accounts   is   abolished and   all   companies   except   those   which   are   small   will   have   to   include   a   business   review   as   part   of   the   directors’ report. Accounts Filing Deadline (Effective date 6 April 2008) The   accounts   for   private   companies   in   respect   of   periods   commencing   after   2008   will   need   to   be   filed   at   Companies House   within   nine   months   of   the   balance   sheet   date   instead   of   the   current   ten   months.      From   February   2009 accounts filed late will incur higher levels of late filing penalties than at present these will be as follows:                                                     Current      Proposed Not more than 1 month £100 £150 2 - 3 months £100 £375 3 - 6 months £250 £750 6 - 12 months £500 £1500 More than 12 months £1000 £1500 The   exact   format   and   content   of   both   full   accounts   and   abbreviated   accounts   is   expected   to   be   similar   to   those currently in use. Company Secretary (Effective date 6 April 2008) There   will   no   longer   be   a   requirement   for   a   company   secretary,   although   the   position   may   be   retained   if   so   desired or if required by the Articles of Association. Company Constitution Matters (Effective date 1 October 2008) The main details are as follows:- Companies will be incorporated under the 2006 Act with effect from 1 October 2008.  Such   companies   will   not   need   to   have   a   “Memorandum   of   Association”   in   the   current   sense   (the   2006   Act “Memorandum”   simply   consisting   of   the   names   of   the   subscribers),   the   need   for Authorised   Share   Capital   will disappear   and   new   simplified   model   “articles”   will   be   available.      By   passing   the   appropriate   resolution   existing companies will be able to adopt the new structure should they so desire.  Although   rarely   seen   in   practice,   the   ability   of   private   companies   to   repay   issued   share   capital   will   be simplified   and   involve   a   statutory   solvency   declaration   by   the   directors   rather   than   the   need   for   court   approval and   the   requirement   for   an   auditor’s   report   for   providing   certain   types   of   financial   assistance   will   also   be removed.  Both   new   and   existing   companies   will   only   be   able   to   appoint   directors   aged   16   or   over   and   will   have   to   have at   least   one   natural   (i.e.   living)   person   as   a   director,   so   it   will   no   longer   be   possible   to   avoid   director’s responsibilities   through   sole   corporate   appointments   or   the   appointment   of   minors.      Any   director   under   the age of 16 on the 1 st  October 2008 will automatically cease to be a director. In Conclusion There   are   significant   changes   to   company   law   as   a   result   of   Companies   Act   2006.      Companies   will   need   to   have regard    to    the    various    effective    dates    for    different    statutory    provisions    and    monitor    the    content    of    secondary legislation to be introduced prior to the later changes.  In   the   meantime   if   there   are   any   specific   issues   you   wish   to   discuss   then   please   do   not   hesitate   to   contact   one   of the Partners on 01527 62345  or
Rigbey Harrison
Chartered Accountants
Serving the Business Community since 1952
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