Key aspects of the Act (which is meant to reduce costs and red tape) will certainly affect your business. For a start companies can be formed by one person (no need to appoint a company secretary), the memorandum will be much shorter and there will be no need to hold an annual general meeting. Annual returns must be still being filed; there are changes to shares and share issue as well as directors and corporate procedures. Here Duport simply explains the key changes that will affect small companies.
How the companies act affects formations
Formations will be simpler and the paperwork straightforward. In future, private companies will be formed by one person. There will be no need to appoint a company secretary (although company secretary duties remain, and you may still appoint a company secretary if you wish), and one person may be both director and shareholder. The old, familiar memorandum will be replaced by a much shorter constitutional document. This will basically say that the members wish to form a company and agree to take at least one share/give a guarantee. The old objects clause is no longer needed and the company has legal capacity. There will also be a standard set of substantially simplified articles.
Authorised share capital will be abolished, and a statement of capital and initial shareholdings will be submitted to Companies House on Formation. The statutory declaration on formation will be replaced by a “statement of compliance”.
Directors must register a service address at Companies House (as well as a residential address – which will remain confidential unless the service address doesn’t elicit a response). The service address may be the company’s registered office and will be public.
Details of any person appointed as an authorised signatory must also be produced on formation.
Many businesses will be pleased that private companies no longer need to appoint a secretary. A director or a person authorised by the director can fulfil the secretary role. It is crucial to remember that the duties currently carried out by the company secretary are still in place. These include the obligation to maintain a register of members, register of directors and register of charges. In addition, there are also two new registers created by the legislation. These are the register of directors’ residential addresses and the register of authorised signatures. Records and registers may be kept in electronic form if you prefer.
Annual return obligations remain and there are still penalties for late returns. Private companies are no longer required to hold an annual general meeting. The register of members now only needs to be kept for 10 years instead of 20 and board minutes kept for at least 10 years.
Shares and share issues
These have been simplified and the new rules should make life easier. For example shareholders and companies can forgo hard copy format and communicate electronically if they wish. A private company with only one class of shares may allot shares without shareholder authority, unless it has stated in its articles it will do otherwise. It will also be easier to allot redeemable shares and shares may be issued direct to bearer without first being issued in registered form.
Private companies will still be unable to offer shares to the public – if they do so they will either have to register as a public company or be struck off (this replaces the earlier criminal penalty).
Directors must now be over 16 and companies may not act as the sole director. There is a statutory code of director’ duties.
Articles of Association
There are standard form articles available and these have been simplified.
Meetings and resolutions
The majority necessary to consent to short notice will changes from 95% down to 90%.Written resolutions no longer need to be unanimous.
Various corporate procedures have been simplified – in particular with regard to protecting creditors and offshore company rules.
Accounts and auditors
All accounting provisions for small companies are brought together to make life easier. The accounts filing date for a private company has been shortened to nine months after the end of the relevant accounting reference period. Auditors will be allowed to limit their liability to the company by contract. Auditors who knowingly or recklessly issue an audit report which is misleading or false will be fined.
The Registrar has been give greater powers to correct and amend information on the public register. Companies House has been given an extra year (to October 2009) to amend its systems and processes ready for those provisions due to commence on October 2008. The new provisions which have been delayed until 2009 are those affecting the formation of a company and a company’s internal constitution, the regulations concerning directors’ residential addresses, company and business names and a company’s share capital. However some provisions may still be implemented, nothing is certain and more announcements will be made in December 2007. The April 2008 provisions will go ahead as planned.