Company formations

About The Companies Act 2006

The Companies Act 2006 is the largest ever piece of government legislation in the UK. It replaces most of the pre-existing company law provisions in the previous Acts (1985, 1989 and 2004) and also makes several very important fundamental changes including: how companies can be formed; the duties and liabilities of company directors; maintenance of share capital and the rights of shareholders.

The introduction of the provisions in the Companies Act has been a slow process. While it had been anticipated that all provisions would be in force by the end of 2008, there have been delays and the Act will now be fully in force by 2010. Some of the main effects of the 2006 Act are as follows:

Company Directors

Company Directors are now allowed to file service addresses with Companies House, rather than having to give their home addresses (which makes them a matter of public record). Directors now also have a duty to promote the company’s success for the benefit of the staff of the company, the local community and the environment, as well as the company’s customers. Failure to recognize this duty could now result in legal action being taken by shareholders (see below.)

Audits

A new criminal offence has been created that makes it unlawful to include false, deceptive or misleading information in audit reports. Companies are now also able to limit the liability of their auditors.

Shareholders

Shareholders can now sue company directors for negligence as they have a duty of care in relation to the company and its shareholders, and they also have the right in certain circumstances to bring other claims on behalf of the company. Shareholders proxy powers have also been enhanced, to promote a culture of long-term rather than short term investment.

What This Means For Small Companies

Table A in the Companies Act 1985 has long provided model Articles of Association for companies. However this has not taken into account changes in the law as they have occurred over time, and therefore has become outdated and largely irrelevant. The new Act now provides model Articles for small limited companies, as well as public limited by shares and companies limited by guarantee.

The Single Director Company

One of the most significant changes for small limited companies is the introduction of the single director company. Since April 2008 there has no longer been a requirement for a limited company to have a separate company secretary.

No Requirement To Hold AGMs

There is now no need for private limited companies to hold Annual General Meetings. Instead, decisions can be made within private companies by passing resolutions. Whereas in the past written resolutions required the unanimous consent of the members, the new Act now provides that the rules relating to special and ordinary resolutions apply to written resolutions. This means that a 75% majority is sufficient.

Other Changes

Previously, there was a ban on private companies requesting financial assistance to be able to purchase their own shares. This ban has now been lifted. The Act also embraces modern technology and provides for much greater use of electronic communications.

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