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Companies Act 2006: Major Business Benefits

URN No: n/a

All companies

• The statutory statement of directors’ general duties makes the well established law in this area more accessible and brings it into conformity with modern business practice.

• Companies will be able to make greater use of electronic communications for communications with shareholders.

•  Liability for reports to the market has been clarified.

• Directors will automatically have the option of filing a service address on the public record (rather than their private home address).

• There will be improved rules for company names.

• Companies will no longer be required to specify their objects.

• The company memorandum will become a formal document recording the position at the point of registration, with just the articles being the continuing constitutional document.

• Shareholders will be able to agree limitations on the liability of auditors.

Key benefits: Private companies

• There will be separate and simpler model Articles of Association for private companies, reflecting the way small companies operate.

• As part of our “think small first” agenda, we will set out a separate, comprehensive “code” of accounting and reporting requirements for small companies.

• Private companies will not be required to have a company secretary.

• Private companies will not need to hold an annual general meeting unless they positively opt to do so.

• It will be easier for companies to take decisions by written resolutions.

• Private companies will no longer be prohibited from providing financial assistance for the purchase of their own shares.

• There will be simpler rules on share capital, removing provisions that are largely irrelevant to the vast majority of private companies and their creditors.

Key benefits: Shareholders

• The business review requirements will promote higher quality narrative reporting by quoted companies.

• The Bill sets out the criteria whereby a shareholder can bring a “derivative” action on behalf of the company against a director for breach of duty, while making sure that unmeritorious suits are quickly dismissed and costs fall to the person bringing the claim.

• There will be greater rights for indirect (i.e. those who hold through a nominee) shareholders.  These will include the right to receive information electronically or in hard copy if they so wish.

• Enhanced proxy rights will make it easier for shareholders to appoint others to attend and vote at general meetings.

• Shareholders will receive more timely information, reflecting improvements in technology and the increased rate at which information becomes out of date.

• There will be more timely accountability to shareholders by requiring public companies to hold their AGM within 6 months of the financial year-end

• There is a new right for shareholders of quoted companies to have a resolution proposed for an AGM to be circulated at the company's expense if received by the company before the financial year-end.

• The Government has made clear that it would like institutional investors to disclose how they use their votes.   While we believe this can be achieved through a best practice approach, the Bill provides a power, which could be used to require institutional investors to disclose how they have voted.