English Companies Act 2006
The English Companies Act 2006 (the "English Act") is overhauling English companies legislation and will largely replace the English Companies Act 1985 (as amended). The English Act is being brought into force in stages—the intention is that the English Act will be fully implemented by October 2009. Many of the changes implemented or proposed by the English Act, especially in relation to private companies, have been as a result of the UK Government's "think small first" approach. Some of the main changes in relation to private companies are summarised below.
Shareholder Meetings
Private companies are no longer required to hold AGMs unless they positively opt to do so.
The notice period for all general meetings will be 14 days, regardless of the business to be transacted at the meeting. The only exception is in relation to AGMs of public companies which will require 21 days notice.
The percentage of members required to consent to the holding of a meeting at short notice has been reduced from 95% to 90%.
Members' Written Resolutions
The procedure for members of private companies to pass written resolutions has been simplified. Rather than requiring the unanimous consent of all of the members of the company, written resolutions may be passed by the same majority as would have been required had the resolution been proposed at a general meeting of the members.
Company Memorandum and Articles of Association
The English Act proposes some major changes in relation to the constitution of English companies. Whilst companies will retain a distinct memorandum and articles of association, the memorandum will shrink and become a short statement that the subscribers wish to form a company and that they have agreed to become its members and, in the case of a company limited by shares, to take at least one share.
The rationale behind this change is that all provisions relating to a company's constitution should be set out in one document, being the company's articles of association.
Companies formed under the English Act will have unrestricted objects unless the company's articles include provisions which specifically restrict the objects of the company.
Authorised Share Capital
Companies formed under the English Act will not have an authorised share capital, but shares will still be required to have a nominal value.
Instead, companies will have a statement of capital. An application to incorporate a company must contain a statement of capital and initial shareholdings. It will state:
- the total number of shares to be taken on formation by the subscribers and the aggregate nominal value of those shares;
- in relation to each class of shares, the rights attached to those shares, the total number of shares of that class and the aggregate nominal value of shares of that class; and
- the amount paid up and the amount unpaid on each share.
Whenever a company alters its share capital e.g. allots new shares, or reduces is share capital, it must file a revised statement of capital with the Registrar of Companies.
Reduction of Share Capital
The English Act will introduce a new out of court procedure to enable private companies to reduce their share capital. The out of court procedure will require a special resolution of the members of the company supported by a solvency statement made by each director of the company.
However, the court approval procedure will still be available for private companies and will be the only procedure available to public companies.
Financial Assistance
It is proposed that the English Act will repeal the prohibition on a private company providing financial assistance for the acquisition of its own shares. The prohibition will still apply to public companies.
Entrenched Provisions of Articles
Under the English Act a company is able to entrench provisions in its articles of association. Its articles may contain provisions to the effect that specified provisions of the articles may be amended or repealed only if conditions are met or procedures are complied with which are more restrictive than those applicable in the case of a special resolution of the members. Provisions for entrenchment can only be made in the company's articles on formation or by an amendment of the company's articles agreed to by all the members of the company.
Company Secretary
Private companies will not be required to have a secretary.
Execution of Deeds
In addition to a company being able to execute deeds acting by either 2 directors or a director and the company secretary, it will be possible for one director to execute a deed by signing it in the presence of a witness who attests the signature.
Isle of Man Companies Act 2006
Many of the concepts introduced or proposed by the English Act are similar to provisions of the Isle of Man Companies Act 2006 (the "IOM Act"). The IOM Act came into force on 1st November 2006 and introduced a new stand alone corporate vehicle into Isle of Man law (an "IOM 2006 Act Company"). The IOM Act swept away some of the more traditional company law requirements which continue to apply to companies incorporated under the Isle of Man Companies Acts 1931-2004.
The IOM Act shares the following similarities with the English Act:
- IOM 2006 Act Companies are not required to hold AGMs, but may opt to do so by provision in their memorandum or articles;
- the notice period of all meetings of members of IOM 2006 Act Companies is 14 days, however, meetings may be called by shorter notice if a member or members holding at least 90% of the voting rights (or such smaller percentage as may be specified in the company's articles) consent to the holding of the meeting at short notice;
- provided the articles of an IOM 2006 Act Company so permit, members written resolutions do not require the unanimous consent of all of the members of the company and can instead be passed by a member or member holding such percentage of the voting rights as is specified in the company's memorandum or articles;
- IOM 2006 Act Companies have unlimited capacity;
- IOM 2006 Act Companies do not have an authorised share capital;
- subject to any contrary provision in its memorandum or articles, an IOM 2006 Act Company can reduce its share capital by means of a directors resolution provided that the directors are satisfied that the company will be able to satisfy a statutory solvency test immediately after the reduction;
- the IOM Act contains no prohibition upon the provision of financial assistance by a company for the acquisition of its own shares;
- the IOM Act allows a company to entrench provisions in its articles of association;
- IOM 2006 Act Companies are not required to have a secretary; and
- a deed may be executed on behalf of an IOM 2006 Act Company by any person acting under its authority, express or implied.
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.