Companies Act 2006 to have significant implications for UK business

Monday 12th March 2007

Tim Ratcliffe, corporate partner

The new Companies Act 2006 will replace and restate in plain English the Companies Acts 1985 and 1989. The Act introduces important reforms which will affect directors, auditors, shareholders and company secretaries of private and public companies.

The Government intends that all parts of the Act will be in force by October 2008, and it is therefore not too early to start to become familiar with the main changes.

On December 31, 2006, the government extended the regime relating to the electronic filing of documents and particulars. All companies will now be able to pass a resolution to communicate with shareholders electronically.

There is now a requirement that company websites must also contain the company’s name, registered number, place of registration and registered office address.

When the main reforms are brought into force, significant changes in law and practice will operate:

  • Every company will be required to have at least one director who is a natural person. A minimum age limit of 16 years has also been imposed. The current maximum age limit of 70 years which applies to public companies has been abolished. A company will have to provide a service address of the directors, rather than a residential address, as is currently required. A company will have to keep a separate register of directors and their usual residential addresses, which will not be open to public inspection.
  • The current confusing distinction between ‘authorised’ and ‘issued’ share capital will disappear, as only issued shares will be relevant, and an annual statement of a company’s issued share capital will need to be filed at Companies House.
  • New provisions relating to directors’ duties will be imposed, incorporating seven general duties to which directors must adhere. These include the duty to promote the success of the company for the benefit of its members as a whole. A director must have regard to the company’s employees, the need to foster business relationships with the company’s suppliers and the impact of the company’s operations on the community and the environment.
  • Currently members must approve both directors’ private exploitation of a business opportunity with the company and a proposed transaction between a director and the company. These rules will be abolished, although the company’s Articles may make express provision for member approval.
  • The Act will also give shareholders a statutory right to sue directors in an action for negligence and other similar actions. This replaces the common law and is a significant change. However, the fact that a shareholder has to gain consent of the court for continuing his claim, by presenting a prima facie case, provides some safeguard for directors.
  • The requirement for a private company to have a company secretary will be abolished. In order to accommodate companies with a sole director, companies will have to appoint authorised signatories to execute documents.
  • A private company will no longer be required to hold an AGM unless it makes a positive decision to hold one. Members holding 10% of the voting rights can request a company to hold an AGM.
  • Currently, written resolutions require 100% consent of the members. The Act provides that the normal rules for ordinary and special resolutions will apply to written resolutions: in other words a simple majority or a 75% majority, as the case may be, will be sufficient to pass a written resolution.
  • The prohibition on a private company giving financial assistance for the purchase of its shares will be abolished for private companies. Consequently the current cumbersome “whitewash” procedure will be abolished, which will result in a substantial time and cost saving to companies.
  • Directors will have a new general obligation to only approve accounts once they are satisfied that they give a true and fair view of the financial position of the company.
  • The obligation to lay the annual accounts and reports before a general meeting will be restricted to public companies, but the period for filing accounts and reports is reduced to nine months after the end of the relevant accounting reference period for public companies, and six months for private companies.

With the implementation of the Act, the government intends that the current company law is simplified and modernised and that the “red tape” currently surrounding private companies will be significantly reduced. This will make it easier and more effective to run a private company. Time will tell whether or not the government achieves its aim.

This article is intended to summarise in outline only what we regard as the most significant changes introduced by this Act and should not be treated as a comprehensive summary of it.

For further information please contact Tim Ratcliffe at