Ashfords Solicitors - Companies Act 2006

1. In force from 06 April 2008

Company secretary no longer a requirement

From 6 April 2008, it will not be necessary for private companies to have a secretary, but they may continue to have one.
If a company wishes to take advantage of the changes, the articles of association should be checked to see if there are any express provisions requiring the company to have a secretary. If this is the case then the articles may be amended accordingly by special resolution. Consideration of employment rights should be taken if the secretary is also an employee.

Changes to how a deed may be executed on behalf of a company

Under the 1985 Act, a deed could be executed on behalf of the company with the signature of two directors or a director and secretary or by using the company seal. The 2006 Act allows the added option that a single director may execute the deed in the presence of a witness who must attest the signature.
This will make the completion of transactions easier when directors are not available to sign documents. It should be noted however that the board of directors should still consider key documents in line with their director's duties.

Auditors – Liability Limitation Agreements

Auditors will be able to agree with a company to limit their liability in relation to the preparation of audited accounts. The agreements must be fair and reasonable. Companies may enter into the agreements by ordinary resolution (or higher if stated in the articles of association).
The 2006 Act brings a new concept of senior statutory auditor who will need to sign the audit report in their own name on behalf of their firm.
The 2006 Act provides for a new criminal offence and fine for audit reports that are misleading, false or deceptive.

Accounts

Accounts and reports should now be filed within 9 months of the end of the relevant accounting reference period, rather than 10 months under the 1985 Act.

Transfers of shares or debentures

Directors must register transfers of shares or debentures or give a reason for refusal to register such a transfer (if so permitted by their articles) as soon as practicable and in any event within 2 months of the transfer date

Distributions

The 2006 Act also provides clarification and codification of common law regarding intra-group asset transfers.

2. Key Provisions due in October 2008

The end of financial assistance prohibition for private companies

The prohibition on financial assistance is to be abolished for a private company giving financial assistance for the purchase of its own shares and the 'whitewash' procedure used under the 1985 Act will become obsolete.

Reduction of share capital permitted without court approval

It will be possible for companies to reduce share capital or to reduce the share premium account without having to go through the court procedure required at present.
As an alternative, it will be possible for all of the directors to make a solvency statement (which will be in a prescribed form) and obtain shareholder approval by special resolution.

The 2006 Act has divided the duty of directors to declare interests in transactions and arrangements into those that are proposed but the company has not yet entered into, and those which are existing which the company has already entered into.
The declaration must be both the nature and extent of the director's direct or indirect interest. If a company had only one director, then no disclosure is required. There is also no requirement to disclose anything that the other directors already know about, or ought reasonably to have known about.

3. Key Provisions due in October 2009

No authorised share capital

Companies will no longer be required to have an authorised share capital (i.e. the limit up to which the share capital can be allotted.) A company will need to amend the articles of association by special resolution if it wishes to restrict the number of shares that can be issued by the company. It will also be possible for directors of private companies with one class of share only to allot shares up to an unlimited amount without shareholder approval, subject to any statutory pre-emption rights, or restrictions in a company's articles of association that may exist.

Directors

A director must state a service address for each director in the register of directors. This can be the company's registered office or the director's residential address. The principle behind this measure is to ensure that a director's residential address can be kept private if necessary.

Conclusion

This update has highlighted key upcoming changes in respect of private companies but it is not intended to be a full overview of the legislation.

Key Contacts