Legal Updates

Companies Act 2006 - Commercial Law – Company Law - New Legislation – Director’s Duties & Responsibilities – Shareholders Rights

The Companies Act 2006 (“the Act”) is now the longest Act ever drafted by the UK legislature, running to 1,300 sections. The purpose of this new legislation is to introduce many reforms to the law and to consolidate virtually all existing company legislations. It is written in simplified language, with a particular focus on small businesses. The key points in relation to the Act are as follows:

  • The Act is intended to help businesses save £250 million a year.
  • The Act was designed to codify directors’ duties, shareholders rights and the other legal requirements relating to modern corporate governance.
  • The seven general duties are set out in s.170 to s.181 of the Act.
  • The duty for a director to act within their powers codifies the common law rule that directors should exercise their powers within the terms that were granted and only for a proper purpose.
  • There is a new duty on directors to act in a way that would be most likely to promote the success of the company. The director is required to have regards to their wider corporate social responsibility, with specific mention of the surrounding community and environment.
  • A positive duty on a director of a company to exercise independent judgement has been introduced.
  • There is a duty on directors to exercise reasonable care, skill and diligence in their day to day working activities.
  • Directors have a duty to avoid conflicts of interest.
  • Directors now have a positive duty not to accept benefits from third parties.
  • The purpose of s.177 of the Act is to reflect s.317 of the 1985 Act, in that it requires a director to disclose his interest to the board of the company when a transaction is proposed between a director and his company.  A director to declare both the nature and the extent of the interest to the other directors.
  • The Act makes it clear that the statutory general duties are to be interpreted and applied in the same way as the existing common law rules and equitable principles on which the Act is based. The Act contains a number of new provisions which improve the rights which affect shareholders. There is now restricted access to the register of members.
  • There is new provision of information rights and voting rights to indirect shareholders.
  • The shareholders now have extended rights to sue directors in certain negligence situations.
  • The Act makes it easier for investors who hold shares through intermediaries such as nominee brokers, to exercise their rights.
  • The Act also gives additional rights to information for nominated persons in quoted companies.
  • A registered member can now nominate another person to enjoy or exercise any or all of the registered member's rights.
  • The period in which accounts must be filed has been reduced from 10 to 9 months from the end of the financial year.
  • Private companies do not have to obtain a court order for the reduction of their share capital.
  • There is no longer a prohibition on private companies from providing financial assistance for the purpose of the purchase of their own shares.
  • Where private companies only have one class of shares, the directors of the company will have unlimited authority to allot shares unless the articles of association provide for the contrary.
  • Private companies can convene meetings on short notice where consent is given by 90% of shares carrying the right to vote.
  • Small private companies are no longer required to hold Annual General Meetings. However should they wish to do so, provision can be made as such in their articles of association.
  • The requirement for unanimity in written resolutions by shareholders has been abolished, and in future they can be passed by an affirmative vote of 75% of all of the eligible votes for both ordinary and special resolutions. In addition to this, members holding 5% of the voting rights (or such lower amount as specified in the articles of association) can require that a written resolution be circulated for approval.
  • There is no longer a need for private companies to appoint a company secretary. Although it should be pointed out that they can do so if they wish to. 
  • Principal listed companies are now required to file their accounts within 6 months of the end of the financial year.
  • They also have to publish a number of documents on their company website – these include: their annual reports, their accounts, results of polled votes in annual general meetings and the results of any independent scrutiny of a polled vote as requested by a minority shareholder.
  • There are a few items which have to be added to the annual reports of companies listed on the main board of the London Stock Exchange – these include: Main factors which are likely to affect the future development, performance and position of a company, information on environmental, employees and social issues and information on contractual or other arrangements essential to the company’s business.
  • Political donations made by public companies now require shareholder approval.
  • Share transfers can now be carried out without the need for paper.
  • Companies can now be incorporated over the internet.
  • The articles of association will be treated as a company’s main constitutional document. The memorandum of association is now treated as part of the articles.
  • The Table A articles of association has been replaced with a modernised version.
  • A company’s capacity is now unlimited unless the articles of association specify otherwise.
  • A single director can now exercise a document as a deed, a witness is still required however.
  • The requirement for authorised share capital has been abolished. A company can redenominate their share capital from one currency to another without an order from the court.
  • Special resolutions now only require 14 days notice unless they are proposed at an annual general meeting.

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© RT COOPERS, 2007. This Briefing Note does not provide a comprehensive or complete statement of the law relating to the issues discussed nor does it constitute legal advice. It is intended only to highlight general issues. Specialist legal advice should always be sought in relation to particular circumstances.


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