UK: An Overview Of The Companies Bill

Last Updated: 28 July 2006
Article by Kit Cardinal

The Companies Bill is finally nearing the end of its lengthy gestation period. It was sent to the Commons on 24 May, and is predicted to receive Royal Assent after the summer recess and to come into force in one block in October 2007. At the end of the Standing Committee proceedings, its name was changed from the Company Law Reform Bill to the Companies Bill. The government has confirmed that it now intends to codify as much of the law as possible in one place and so it is consulting on further clauses to be added to the Bill to restate those parts of the Companies Act 1985 that were not originally incorporated.

The government’s stated objectives for the Bill are to:

  • enhance shareholder engagement and a long-term investment culture;
  • ensure better regulation in a "think small first" approach;
  • make it easier to set up and run a company; and
  • provide flexibility for the future.

Some changes have proved more controversial than others, with the codification of directors’ duties attracting the most attention and criticism. However, when the Bill comes into force it will affect every aspect of running a company, from administrative matters and decision-making to specific transactions.

Company formation and constitution

One of the Bill’s stated objectives is to make it easier to set up a company. A new formation procedure is set out, which involves providing Companies House with much the same information as is required now. However, companies will be able to be formed with just one subscriber and (in the case of private companies) one director who is an individual (rather than a corporate director; public companies will still have to have two directors, including at least one individual).

In the White Paper preceding the Bill, the government had been in favour of replacing the separate memorandum and articles with a single constitutional document. This proposal has not found its way into the Bill, although the significance of the memorandum is greatly reduced: it will simply be a statement of intent by the subscriber that he intends to form a company and subscribe for a certain number of shares. Therefore, the objects clause will become a thing of the past; indeed, companies will not be required to state any objects at all. They may choose to state their objects and powers in their articles (and the Bill contains provisions for entrenching provisions into the articles), and any provisions in existing companies’ memoranda except for the basic information required in the new form will automatically be transferred into their articles. Although this change frees companies from the restrictions of their objects, it will not make much difference in practice if existing companies do not remove the restrictions from their articles, and lenders continue to insist on certain objects (e.g. the power to borrow) being included in the articles before they will lend a company money.

The articles are to be substantially revised by the Bill. Three separate sets of "model articles" for private companies limited by shares, private companies limited by guarantee and public companies will be provided in a statutory instrument, replacing Table A. The DTI is currently consulting on the proposed articles for public companies, and will consult on the others in due course. The biggest change will be for private companies, with the model articles reflecting many of the common changes currently made to Table A, and concentrating on directors’ decision-making in line with the Bill’s shift of focus away from shareholder meetings (see below). As with the Bill, the aim is to make it easier for directors and shareholders to understand the procedures and obligations involved in running a company, hence the plain English style and practical emphasis. Alterations to the articles will still be possible, and companies may choose not to apply the model at all. If existing companies want to adopt the new model articles, they must do so expressly, since the form of Table A or model articles in force at the time of incorporation applies unless a company states otherwise.


Various measures are introduced by the Bill to streamline the procedures for dealing with a company’s shares, principally:

  • the removal of the need for a company to specify its authorised share capital, so that there is no longer a ceiling on the number of shares a company may issue. However, public companies will still be required to have a minimum allotted share capital of £50,000;
  • the directors will not need to obtain the shareholders’ approval of certain decisions (whether in the articles or by resolution), such as making allotments (as long as the company is a private one with only one class of shares), declaring final dividends (this is a change in the new model articles for private companies only), issuing redeemable shares, purchasing their own shares and consolidating and subdividing shares;
  • there is a new procedure in the Bill which allows companies to redenominate their share capital by ordinary resolution; and
  • transactions involving shares will be easier. For example, private companies will be able to reduce their share capital without applying to court, and the prohibition on giving financial assistance will no longer apply to private companies.

Many of these changes reduce bureaucracy at the expense of shareholder control, although shareholders can include provisions in their companies’ articles to restrict the board’s exercise of these broad powers where necessary. On the positive side, where shareholder meetings do occur, they will not be preoccupied with "rubber-stamping" the board’s decisions, but will be able to focus on significant decisions or issues the shareholders wish to raise. There are other changes in the shareholders’ favour, such as the requirement for directors to give a transferee an explanation as to why they have refused to register his transfer.


By cutting down on much of the bureaucracy inherent in running a company, the Bill reduces the requirement for shareholder involvement in a number of decisions. In the case of many shareholders, who are simply investors, these changes will not worry them. However, they will be of concern to those shareholders who take more of an interest in management, who will want to amend their companies’ articles to ensure that they are involved in more decisions. Whilst reducing the need for directors to revert to the shareholders for approval, the Bill does ensure that the directors keep shareholders informed and consider their interests when making decisions.

A significant change as far as shareholders are concerned is the codification of their right to bring a derivative action. Shareholders will be able to seek relief on the company’s behalf in respect of its director’s negligence, default, breach of statutory duty or breach of trust. A two-stage procedure is set out in the Bill, whereby the shareholder must apply to court for permission to continue with his claim once it has been issued. There is much speculation as to whether this codification will "open the floodgates" to shareholder claims, particularly since they will not necessarily have the opportunity to air grievances at meetings.


The Bill makes a number of changes which will affect directors, many of which are designed to clarify their duties and make them more accountable. In one of the most discussed changes in the Bill, directors’ duties are to be codified. Briefly, these codified duties are:

  • to act within their powers;
  • to promote the success of the company;
  • to exercise independent judgment;
  • to exercise reasonable care, skill and diligence;
  • to avoid conflicts of interest;
  • not to accept benefits from third parties; and
  • to declare interests in proposed transactions and arrangements (complemented by a separate obligation to declare interests in existing transactions and arrangements).

Shareholders are given control over whether to ratify a director’s negligence, default, breach of duty or breach of trust, as this will require an ordinary resolution. In terms of breaches of statutory provisions, a company’s officers will be liable rather than the company itself, in a move to make officers more accountable for compliance. The Bill also introduces a new offence of giving misleading, false or deceptive information to Companies House.

Other changes concerning directors follow the same pattern of making them more accountable to shareholders, such as necessitating shareholder approval of service contracts for a period of 2 years or more, rather than the current 5 years or more. Some rules are relaxed, with the prohibition on giving loans to directors and its complex exceptions being replaced with a need for shareholder approval, and the need for prior shareholder approval of substantial property transactions becoming more flexible to allow retrospective approval to be given.


The Bill aims to make shareholder decision-making more straightforward and realistic, for instance, by providing for only two types of shareholder resolution – ordinary and special – and making it easier for companies and shareholders to communicate electronically.

The Bill recognises that many small, private companies do not hold shareholder meetings unless they are absolutely necessary – they pass an elective resolution to opt out of the requirement to hold AGMs and consult shareholders by written resolution where necessary. Therefore, it makes it easier for private companies to make decisions by written resolution (e.g. by allowing a resolution to be carried by the majority relevant to the resolution, and providing that it will lapse after a certain period if not passed). They will not have to hold AGMs, but where a shareholder meeting is held, private companies will only have to give 14 days’ notice, and 90% of the shareholders will be able to consent to short notice.

Since greater accountability is required of public companies, their meeting procedures remain more rigid. For example, they will have to hold AGMs on 21 days’ notice and the statutory written resolution procedure will not be available to them.

In a major change, private companies will not be required to have a company secretary any more, with the director(s) taking on the secretarial functions instead. This recognises that the need to have a secretary imposes an unnecessary financial burden on very small companies (who often engage an external adviser to take on the role), but the Bill still makes an identifiable individual responsible for the company by ensuring that at least one director is a real person (as opposed to a corporate director). As a result of this change, companies will have to change the way in which they execute documents, which will either have to be signed by two directors, or by one director and a witness (who must be present and may or may not be the company secretary). Public companies will still have to have an appropriately qualified person in the role of company secretary.

The Bill attempts to combat the use of information stored on the public record for improper purposes, by protecting directors’ residential addresses from public disclosure and by restricting inspection of the register of members to "proper purposes".

Company accounts

Companies will still be required to circulate their accounts and reports to shareholders and others, but only public companies will be required to lay them before the shareholders at an AGM. The filing deadlines will be reduced to 9 months from the end of the relevant accounting period for private companies and 6 months for public companies. The Bill requires directors’ reports to contain a "business review" for all companies, except small ones, which must include an analysis of the company’s development and performance for the financial year, and a description of the main risks and uncertainties it faces. The purpose of the review is to enable shareholders to ascertain how the directors have performed their duty to promote the company’s success. This requirement is not significantly different from the current position for medium and large companies.

The Bill creates a new offence rendering an auditor liable if he knowingly or recklessly causes an auditor’s report to include false, misleading or deceptive information. On the other hand, it allows auditors to enter into "liability limitation agreements" in respect of any negligence, default, breach of duty or breach of trust during an audit. These agreements will be subject to a time limit of one financial year and will need shareholder approval.


The Bill is not concerned with insolvency law, and so there are only two changes to mention:

  • it amends the Insolvency Act 1986 so that if a company in liquidation’s assets are insufficient to pay all of the expenses of liquidation, they must be met out of the property comprised in or subject to any floating charges, in priority to any other claims to that property. This reverses the decision in Re Leyland Daf Ltd, Buchler v Talbot ([2004] 1 All ER 1289); and

  • the restrictions relating to substantial property transactions will no longer apply to transactions entered into by administrators, bringing them into line with those entered into by liquidators.

The original version of this article was published on 30 June 2006.

This article was written for the FL Memo Ltd newsletters which are part of its Company Law Memo service. To register to receive these newsletters for free, please go to

This article is provided on the understanding that the information contained within it is for guidance only, and that neither FL Memo Ltd nor the author is in business to provide legal or accounting advice or other professional services. Readers entering into transactions on the basis of, or otherwise relying on, such information should seek the services of a competent professional adviser. Whilst every care has been taken to ensure the accuracy of the contents, the author and FL Memo Ltd cannot accept responsibility for any loss occasioned to any person acting or refraining to act as a result of any statement in it.

© FL Memo Ltd

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.