Company Law
Not since 1985 has such a dramatic overhaul of company law been on the horizon. In 2007 major changes will affect how businesses of all sizes operate.
The new Companies Bill is intended to simplify procedures and provide flexibility for the future. The main aims are to:
- Increase shareholder involvement and the long-term investment landscape
- Improve regulations
- Simplifying the setting up and running of companies
- Create flexibility for the future.
The key points include:
- Revised rules for raising share capital
- Statutory list of director’s duties
- Allow directors to be indemnified by the company rather than purchasing relevant insurance
- Allow home addresses of directors to remain confidential in certain circumstances
- Capping auditors liability
- Changes to company formation and administration
- Greater use of electronic filing and reporting
- New rules to enable company law to be updated more easily
- EU directives to be implemented under new corporate governance rules
- Changes in shareholder rights
- Statutory right to bring a claim on behalf of the company.
Directors will be required to act in good faith and to promote the success of the company. They will be required to deliver ‘enlightened shareholder value’.
The current restrictions on companies making loans, giving guarantees and providing other loan securities for directors will be removed. Member consent will be required though.
A key focus of the new legislation is to encourage shareholders to take a more active role in the company. They will be able to sue directors on behalf of the company for breach of duty / trust or negligence.
In the area of company reporting, changes are being introduced to improve the accounting and auditing process. Auditors that resign from a quoted company must state their reasons whilst for unquoted companies, reasons must only be given if there are issues that shareholders and creditors should be aware of.
Company auditors will also have their liability limited.
For private companies limited by shares a new simplified set of Articles of Association will be introduced. Existing articles can continue to be used or the new ones adopted by special resolution.
Private companies will no longer be required to hold an AGM. Resolutions may be circulated electronically encouraging quicker decision making.
Summary:
Many of the changes are to be commended. The focus on flexibility and simplicity is long overdue. However, much of the new law has been drafted with larger public companies in mind.
For the smaller, owner-managed business it remains to be seen whether the new regime will encourage enterprise or just add to the ever increasing bureaucracy that surrounds business in the UK.
Please Note:
This article is for general guidance only and should not be regarded as constituting legal or business advice or opinion.
Proper legal and/or business advice should be sought and taken in relation to the specific circumstances of each case. This article is not intended to be a substitute for obtaining specific legal and/or business advice from an appropriate professional.
Author: Jon Heath, The CMC Partnership
Date: November 2006
