The most sweeping changes to company law in over a decade were announced by the Government in November 2005 in the form of the Company Law Reform Bill, now the Companies Bill. The Bill has been making its way through Parliament and is expected to become law later this year, however it will not come into force until either April or October 2007.
The Government has succumbed to pressure to consolidate the changes the Bill contains with the Companies Act 1985, rather than having two separate pieces of legislation as the had been proposed.
The predominant themes of the Bill are (a) to simplify company law, especially for small companies and (b) to allow directors of companies to find out more easily what duties the law places on them.
The Bill covers a vast spectrum of matters affecting company law and makes a large number of changes to the current 1985 Companies Act. Therefore what follows are some of the headline areas that we think will most interest readers of this bulletin.
· Codification of director's duties
For the first time in UK history the duties imposed on directors will be codified and set out in the Bill. This is not, however, a "one-stop shop"- directors will still have duties under other legislation, such as the Insolvency Act. It is, however, the first time the general company and common law duties have been spelled out in legislation, rather than in textbooks.
The most controversial provision is a new duty to promote the success of the company for the benefit of its members as a whole. It includes a duty to have regard to a list of factors including employees, the environment, the community, relationships with customers and suppliers and the desirability of maintaining a reputation for high standards of business conduct.
Private companies have always had the ability to vote by way of a resolution in writing rather than having to call a physical meeting but resolutions in writing required unanimity. This has now been relaxed so that the two regimes are more closely aligned. There is no longer any requirement for a private company to have a company secretary.
By "private" the Bill means "limited". Companies which are privately owned (i.e. not traded on AIM or any other stock exchange) but have been incorporated as a " plc" are not treated as "private" in the Bill and therefore do not benefit from some of the simplifications proposed.
The Bill also provides for greater use of e-communications with shareholders, for example for Notices of AGMs, provided certain approvals are first obtained.
· Protecting Directors' and Shareholders' addresses
This part of the Bill was being discussed at the time of the threats to GlaxoSmithKline shareholders from animal rights activists and resulted in even greater exemptions in the Bill. Directors need only give a service address and not their home address on the public register. Also tightened was the ability for a person to ask for sight of the list of shareholders.
· Auditors and Accounts
Filing periods for private and public company accounts have been shortened and, for the first time, companies can agree to limit the liability of their auditors.
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