Unfortunately, rather than taking the simple approach of bringing the whole of the new Companies Act 2006 into force at once, the Government has instead done things piecemeal leaving companies struggling to work out how the new legislation impacts on their day to day operations.
Every Company has a set of Articles of Association which set out its constitution and how it should run its affairs. Whilst there is still more legislation to come into force, companies should now be taking steps to review their Articles to allow them to take advantage of the increased flexibility the new Act provides. The top 5 "tidy ups" for their Articles that all companies should be considering are as follows:-
1. Shareholder Resolutions
There are now only two types of Resolutions that can
be passed at meetings, Ordinary Resolutions – 50% and
Special Resolutions – 75%, so all references to Extra
Ordinary Resolutions should be deleted. A new procedure
for passing Written Resolutions has also been implemented,
these no longer need to be signed by all shareholders and can
be passed by 50% or 75% of shareholders, depending on the
subject matter. Any Written Resolution procedure in the
Articles should therefore be deleted.
2. Meetings
Private companies no longer require to have Annual
General Meetings and all references to such meetings should be
deleted from the Articles. All shareholder meetings will
now be known as General Meetings and the notice period can be
reduced to 14 days rather than 21, provided that the Articles
of Association have been updated to reflect this. This
allows companies to convene meetings more quickly and means
that they are no longer required to hold meetings which are
unnecessary. From April private companies will no longer
be required to have a secretary so all references to the
secretary should also be removed.
3. Voting
New companies will no longer be able to have
provisions granting a Chairman's casting vote at meetings
but those whose Articles currently have such a provision will
be able to continue to rely on it. Companies should
consider whether a Chairman's casting vote is required in
all situations.
Proxies are now entitled to vote on a show of hands and speak at meetings and the Articles should be reviewed to ensure that they comply with the new law.
4. Electronic Communications
The new Act contains provisions permitting companies
and their shareholders to communicate electronically.
This gives companies flexibility allowing them to reduce costs
and their impact on the environment. Shareholders can
still require that they get the company's communication in
paper form if they prefer so no shareholders will be
disadvantaged and many now prefer to use email and
websites. The Articles should be amended to take
advantage of this new regime and shareholders contacted to
obtain the necessary details.
5. Directors' Indemnities
Directors now have seven specific duties as set out in
the Act four of which are already in force:
- the duty to promote the success of the company;
- the duty to act within their powers;
- the duty to act independently; and
- the duty to exercise reasonable skill and care in carrying out their activities.
The remaining three duties relate to conflicts of interest between the Directors and their company and these come into force on 1 October 2008. Directors should be aware of their new duties and ensure that their actions do not fall foul of these. Articles of Association usually contain a standard indemnity to protect Directors in case of litigation against them and the new Act allows an extension to the protections currently available. Directors would be well advised to ensure that the Articles are updated to provide them with the fullest indemnity possible.
All companies should be briefing directors on their new duties and reviewing their Articles to take advantage of the new flexibility now available.
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.
