Changes under the Companies Act 2006
On 1 October 2008, several new provisions of the Companies Act 2006 (“2006 Act”) come into force. Many of these provisions simply re-state or extend provisions already in force under the Companies Act 1985. Others, such as the provisions relating to the implementation of a Companies Name Tribunal, impose new rights and obligations on companies. Set out below are the main changes which come into force on 1 October 2008 which may affect your business.
OBJECTION TO COMPANY NAMES
Sections 69 to 74 of the 2006 Act provide for the establishment of the Company Names Tribunal. The aim of the Tribunal, which will be operated and administered by staff at the Intellectual Property Office (not by Companies House), is to offer a more effective route than is currently available for objecting to company names on the grounds that an individual or company already has goodwill in that name. Under the new provisions, a company or an individual can object to a company name being registered on the grounds that the name is the same or similar to one in which that company’s or individual’s business has goodwill and is likely to mislead the public by suggesting a connection between the two businesses.
Goodwill or brand owners have historically been forced to seek remedy by way of an action for passing off (where their trade mark is unregistered but has accrued certain rights through use and reputation) or infringement (where their trade mark is registered). Actions for passing off and infringement are notoriously time-consuming not to mention expensive, therefore it is hoped that the Company Names Tribunal will prove to be a more accessible recourse for companies and individuals.
TRADING DISCLOSURES
Every company is currently required to display its company name and details at certain locations, in company documentation and on its website.
From 1 October this year, any company which has been dormant since incorporation will no longer be required to display its registered name at its registered office.
From 1 October 2008 a company will be required to respond to enquiries about where its company records are kept available for inspection. Under the new provisions any person with whom the company deals in the course of its business may request in writing information from the company including the address of its registered office, any inspection place and the type of company records kept at that office or place. The company must send a written response to that person within 5 working days of the receipt of that request.
For further information in relation to Trading Disclosures, including the new provisions brought in by the 2006 Act, please click here.
REDUCTION OF SHARE CAPITAL
Under the 2006 Act a private company is no longer required to pass a special resolution and then obtain court approval in order to reduce its share capital. Instead a company is able to go through the new “solvency statement” procedure. The solvency statement procedure requires the following to be effective:
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a special resolution of the company;
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a solvency statement made by the directors;
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a memorandum of capital showing the alteration in the company's share capital; and
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a directors’ statement.
The procedure is open to private companies only - not PLCs. The solvency statement route provides a more simple and cheaper means for a private company to reduce its share capital.
NATURAL DIRECTORS
With effect from 1 October 2008 every company is required to have at least one director who is a natural person, i.e. an individual, though any company incorporated before 9 November 2006 has the benefit of a grace period in that it is not required to appoint a natural director until 1 October 2010. However, best practice for any such company without a natural director would be to appoint an individual as soon as the Board has agreed on a suitable candidate. Any company incorporated on or after 9 November 2006 must have at least one natural person as a director from 1 October 2008. From 1 October 2008 Companies House will refuse to register any new companies which are incorporated without at least one natural person as a director.
It is also worth noting that from 1 October 2008 all directors must be at least 16 years old. If a person under 16 has been appointed before this date then he/she will immediately cease to be a director from 1 October 2008. No notification will be given by Companies House.
For further information on the new rules in relation to directors please click here.
DIRECTORS’ DUTIES
Many of the new directors’ duties have already come into effect however three of these will come into effect on 1 October 2008. These are:
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duty to avoid conflicts of interest;
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duty not to accept benefits from third parties;
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duty to declare interest on proposed transactions or arrangements.
Please refer to our briefing on Directors’ Duties which gives further details on each of the new duties coming into force.
ANNUAL RETURN REQUIREMENTS
Since 1 October 2007 all companies have been permitted to restrict access to their register of members. In line with this annual returns made up to a date on or after 1st October 2008 will contain reduced information on company's shareholders. Private and non-traded public companies are only required to provide names of shareholders not addresses. Companies House will not accept annual returns made up to 1 October 2008 or after which include address information of shareholders.
Public companies are required to provide names and addresses only for those shareholders holding at least 5% or more of any share class. Companies House will, however, still accept annual returns which bear address information of shareholders whether or not they hold a shareholding of 5% or more.
LIMITED LIABILITY PARTNERSHIPS ACCOUNTS AND AUDIT PROCEDURES
With effect from 1 October 2008 the 2006 Act will bring into line LLPs’ accounts and audit procedures with those currently applied to companies.
All LLPs will be obliged to keep adequate accounting records (whether trading or not) for each financial year. Failure to do so will be a criminal offence for every LLP member in default.
Special provisions apply for annual accounts and auditor reports of medium-sized and small and dormant LLPs such that they may omit certain information from their accounts and file abbreviated accounts at Companies House. Small LLPs, group LLPs and dormant LLPs may also be exempt from audit.
REPEAL OF WHITEWASH PROCEDURE FOR FINANCIAL ASSISTANCE
The restrictions on financial assistance by a private company in relation to the acquisition of its own shares or shares in a parent company are to be repealed with effect from 1 October 2008. The effect of the repeal is that compliance with the whitewash procedure will no longer be statutorily required to validate transactions involving financial assistance by private companies.
This is good news for companies looking to provide financial assistance as the whitewash procedure has proven to be a costly and expensive exercise.
For further information please contact: Scott Kerr