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Company Law Reform Bill - Overview

1. Introduction

We set out below a brief overview of the Company Law Reform Bill as published on 1 November 2005.

Please note that only the private company aspects to the Bill have been reviewed - the public and quoted company provisions are not covered.

The overview is split into the following areas
 Key principles

The legislation is drafted on a "Think Small Company First" principle. It therefore uses simpler language than before and removes the private company from a number of procedures and regulations.

However, for public companies the detail in the current legislation remains, and further provisions have been added to reflect various European Directives, including provisions relating to takeovers and disclosure of information.

E-communications are also facilitated by this Bill.

Formation
  1. Private companies will, in future, be formed by one person. There is no need to appoint a company secretary (although his duties will remain), and one person may be both director and shareholder.
  2. There will be one constitutional document on formation. The memorandum is replaced by a much shorter document saying that the members wish to form a company and agree to take at least one share/give a guarantee. The new law provides that the company has the same legal capacity as a natural person so the objects clause is no longer needed. In addition, a standard set of substantially simplified articles will replace the existing Table A based articles of association.
  3. The information to be provided on formation differs to that currently provided. Authorised share capital is abolished and there are statements of initial capital and initial shareholdings to be submitted to Companies House on formation. Form 10 will therefore change accordingly.
  4. Form 12 (the statutory declaration on formation) will be replaced by a "statement of compliance".
  5. Corporate directors may not be appointed unless there is also a natural person acting as a director.

  6. Any director may register a service address at Companies House instead of a residential address without justifying the need for using a service address.
  7. Provisions have been included to prevent company names being registered to exploit a third party's goodwill in a name and to prevent the registration of too similar names.

Company administration
  1. Private companies need not appoint a secretary. There is a provision in the Bill that says that anything that is required to be done by or to the secretary may be done by or to a director or by or to a person authorised by the director in that behalf.

  2. However, the duties currently carried out by the company secretary remain, such as the obligation to maintain a register of members, register of directors and register of charges. There is clarification that records and registers may be kept in electronic form.
  3. The obligation to file an annual return remains.
  4. A private company is not required to hold an annual general meeting.
  5. The accounts filing date for a private company is shortened to 9 months after the end of the relevant accounting reference period.
  6. More flexibility has been introduced to enable the company to set the level of shareholder approval necessary to change its name.
  7. The register of members must now be kept for 10 years instead of 20 years.
  8. The existing accounting provisions will be re-drafted to bring all relevant provisions for small companies together in one part of the Act, and all provisions for medium companies together, to make it easier to find the provisions. However, there is little change of substance, other than the shortening of the period to file the accounts by one month.
  9. The Secretary of State has power, by secondary legislation, to make rules relating to the disclosure and display of company information in certain locations or in certain company communications. The intention is to align the disclosure requirements in the Companies Act 1985 and the Business Names Act 1985.
  10. There are provisions in the Bill for shareholders and companies to consent to dealing with each other electronically rather than in hard copy format.

Shares and share issues
  1. A private company with only one class of shares may allot shares without shareholder authority, unless its articles provide otherwise.
  2. It will be easier to allot redeemable shares.
  3. Shares may be issued direct to bearer without first being issued in registered form.
  4. The prohibition on a private company offering shares to the public remains, but the criminal penalty is removed and replaced by penalties that will require the company to re-register as a public company or to be struck off.
Directors
  1. With a view to ensuring that there is one adult individual responsible for the company's actions, children under 16 may not be appointed as directors and companies may not act as the sole director.
  2. A statutory code of directors' duties has been introduced.
  3. The various provisions in the Companies Act 1985 relating to disclosure and approval of transactions with directors have been revised and restated.
  4. The section 303 director removal provisions have been restated and amended.
  5. There is a new section relating to ratification of director's acts by shareholders, but this does not affect any provision of law that provides that a particular act or omission may not be ratified.

Articles of association
  1. Standard form articles for private companies limited by shares, public companies and private companies limited by guarantee will be produced which will apply in default of amendment.
  2. It will be possible to entrench provisions into the articles which may not be changed. For example, the provision found in guarantee company articles that prohibit profit distributions could become entrenched provisions in the articles once this Bill is implemented. Provisions can also be entrenched so that only a certain percentage of members could change them.

Meetings and resolutions
  1. The majority necessary to consent to short notice will change from 95% to 90%.
  2. The shareholder written resolution procedure has been changed, with auditors no longer being required to be sent a copy. Instead there are provisions requiring the resolution to be circulated to members, and if consent to the passing of the resolution is not obtained within 28 days of the circulation date, the resolution lapses.
  3. The provisions regarding calling and notice of meetings, appointments of proxy and corporate representatives, quorums and polls have all been restated and revised.

Corporate procedures

Various corporate procedures are affected, as follows:
  1. The prohibition on financial assistance is abolished for private companies, unless it is a wholly owned subsidiary of a public company.
  2. The reduction of share capital procedure is simplified with creditors being protected through a declaration of solvency made by the directors, rather than by a court process.
  3. The re-registration procedures (private to public and vice versa) are revised and restated.
  4. There is a new procedure to make it easier to redesignate the currency of issued share capital.
  5. A new procedure will be introduced by secondary legislation to allow the migration of the registered office from England & Wales to Wales or Scotland and vice versa.
  6. Public companies may take advantage of the voluntary strike off procedures in the Companies Act 1985.
  7. Changes will be made, by secondary legislation, to align the "place of business" and "branch" registration provisions, to simplify the rules applicable to offshore companies.
  8. Changes are made to the purchase of own shares provisions.
  9. There are new sections relating to the bringing of derivative actions by shareholders (ie where a shareholder brings a claim alleging that the company has suffered loss and therefore his share value has suffered loss). Under the current law it is difficult for shareholders to bring such actions if the company decides not to take action itself (for example, if the loss is caused by the directors). Under the Bill, shareholders will be able to take action against the directors for breach of duty or trust or negligence for a loss suffered by the company, even if the director was appointed before they became a member.

Companies House

The Registrar is given greater powers to correct and amend information on the public register.
Company Registrations
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7 May 2008
New Statutory Instruments published for consultation.

BERR has published a set of draft Statutory Instruments, all of which will come into force on 1 October 2008, for consultation. Read more

28 March 2008
From 6 April 2008 private companies no longer need to appoint a company secretary
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20 March 2008
SIs for April 2008 implementation issued.
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17 December 2007
Fifth Commencement Order published.
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13 December 2007
Final commencement timetable announced.
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