AAT Articles

Companies Act 2006

Steven Collings gives an overview of the changes in the Companies Act 2006, the impact it has on private companies and the dates that the changes take effect.

Last year saw the new Companies Act 2006 become law.  The need to change the Act was to ensure it reflects modern needs.  For example, greater use of technological advances i.e. internet transmission of documents meant the Act needed a revamp to bring it up-to-date.

The Companies Act 2006 has now become law though its provisions will be brought into force in stages with all the provisions in force by October 2008. This article give an overview of the changes and the effect the new Act has on private companies as well as the dates the changes are to be taken in to effect.

Company Formation
Previously it was necessary to have a Memorandum of Association and Articles of Association.  The Memorandum will no longer be required and from October 2008 the articles, rather than the Memorandum, will set out how the company conducts its business.

From October 2008, new companies registering under the new Act will be able to take advantage of new default Articles of Association which are set out in much clearer language.  This is purely at the discretion of the new company and they do not necessarily have to adopt the model Articles.  Existing companies can also choose to adopt the new articles, if they so wish.

The previous Companies Act required an objects clause which effectively restricted a company to those activities.  There will no longer be a requirement for companies to state their objectives.  A company can, however, be restricted if it so wishes.

No Requirement for Company Secretary
From April 2008, private companies will no longer have to appoint a company secretary, unless they choose to do so.  If, however, a company does choose to have a company secretary, the secretary will continue to have the same responsibilities as now and will need to be registered at Companies House.

Decisions taken by Shareholders
From October 2007, written resolutions signed by shareholders are an alternative to calling General Meetings.  Written resolutions will no longer need to be signed by all the shareholders, only the majority need sign.  The majority is a simple majority, though for special resolutions 75% of the shareholders will need to sign the resolution.

Written resolutions will no longer have to be notified to a company’s auditors.

Use of Electronic Technology
In the wake of technological advancements over the years, companies can now choose to make more use of these electronic methods.  Written resolutions can now be circulated by email or other electronic forms with the consent of the shareholders.  This is planned to take effect from January 2007.

The Annual General Meeting
From October 2007, there will no longer be a requirement for private companies to hold an annual general meeting.  Shareholders, however, can demand a meeting if at least 10% (5% in certain circumstances) wish to hold a meeting.  These meetings can be on a 14 day notice period unless different arrangements are laid down in the company’s Articles.

Directors’ Addresses
From October 2008, directors will be required to file a service address on Companies House records.  This address may be the company’s address, as opposed to their residential address and this address will be held as protected information at Companies House.

Share Capital Reduction
From October 2008, it will no longer be necessary to obtain approval from the Courts to reduce the company’s share capital.  Share capital reduction can take place following approval by the shareholders in special resolution.

Abolishment of Financial Assistance to buy a Company’s Own Shares
From October 2008, the restrictions which mean companies cannot give financial assistance for the purpose of their own shares is to be abolished.

Company Directors and Conflict of Interest
All companies must have one natural person as a director.  All directors must be at least 16 years of age and all existing underage directors will cease to be director from October 2008.

Company directors fiduciary duties have remained largely unchanged and they must still strive to act in the company’s best interests and promote the success of the company for the benefit of its shareholders as a whole.

Directors have always had a duty to avoid situations that gives rise to conflicts of interest.  At present, only the shareholders can authorise conflicts of interest.  However, in the case of existing companies, it will be possible for directors who do not have an interest in the matter causing the conflict to authorise it, though this action has to be specified in the company’s Articles.

Accounting Requirements
At present, companies are required to file accounts and annual reports to the Registrar of Companies within ten months of the accounting year end.  This deadline is to be reduced to nine months from April 2008 in view of technological advancement.

Group Accounts
Currently only large groups of companies are required to file consolidated accounts to Companies House.  This requirement has changed from 1 April 2008 so as to apply to small groups of companies only.

Summary
The Companies Act 2006 brings in today’s modern needs and addresses issues such as electronic transmission of documents which the previous Companies Acts did not.  Professional firms of accountants need to ensure their clients are kept abreast of the developments brought in by the new Companies Act 2006 to ensure they take advantage of the deregulatory benefits of the new Act.  Certainly, firms of accountants need to address the issues with their clients concerning the filing deadline reduction from ten months to nine months as penalties will be levied for late submission of accounts and annual reports as is the case at present.

Steven Collings FMAAT ACCA is Audit/Accounts Senior at Leavitt Walmsley Associates Ltd