Dec 30, 2015
THE COMPANY LAW REFORM BILL
COMPANY FORMATIONS AND RELATED ISSUES AS AT 19 JUNE 2006
RICHARD PATON
Partner, Hill Dickinson LLP
Member of the Law Society Standing Committee on Company Law
STATUS IN PARLIAMENT -Brought from the Lords to the Commons on 24 May 2006
In Committee in the Commons since 20 June, expected to finish by 13 July 2006ROYAL ASSENT - Expected Autumn 2006
IMPLEMENTATION - Expected October 2007 onwards
REGULATIONS - None published yet, except for two sets of draft Model Articles
ORIGINS -Company Law Review, started in 1998
SIZE OF BILL - Over 900 clauses plus 16 Schedules, 500+ pages
Directors’ transactions with their companies (note that the rules about quasi-loans and credit transactions are extended to private companies except wholly-owned subsidiaries)
Derivative Actions (new statutory procedure)
Communications with Shareholders (use of websites is the default position for quoted companies)
Company records (can have a separate register for past members)
Registrar of Companies’ powers (to cleanse the register, etc)
SELECTION OF TOPICS COVERED BY CLRB (BUT NOT IN THIS SEMINAR)
Codification of Directors’ duties (in detail)
Accounting requirements (revised - OFR abandoned and replaced by Business Review for all except small companies)
Aveling Barford v Perion (problems of transfer of non-cash assets at book value removed so long as company has distributable profits)
Redenomination of share capital into foreign currency (easier, no reduction of capital)
Variation of class rights (simplification, no distinction between rights in memorandum and those in articles)
Takeovers (Implementation of the Takeovers Directive)
Reductions of capital (new procedure for private companies, with no court proceedings)
Auditors’ liability (able to limit by a liability limitation agreement)
Transparency (implementation of the Transparency Directive)
Striking off, dissolution and restoration (new administrative restoration procedure; voluntary striking off extended to public companies; six-year time limit for applications for all types of restoration application, except for personal injury claims purposes)
Abandonment of Company Law Reform Power, reliance on Legislative and Regulatory Reform Bill?
Consolidation of existing Companies Acts
Extension to Northern Ireland
Registration of charges (not in CLRB, details awaited)
Business Names (control via regulations for individuals, partnerships and LLPs)
Names indicating a connection with H M Government / Local Authority / public authorities specified in regulations
Use of symbols, accents and punctuation
Use of characters and signs (especially at the beginning of a name)
Prescribed standard style or format
Proscribed words
“Same As” rules
TOPICS RELEVANT TO COMPANY FORMATION
NAME OF COMPANY
“Too like” rules and Company Names Adjudicators; effect on “opportunistic registrations”
Similar requirements to CA 1985 if “limited” omitted
only one needed for a public company become holders of shares on incorporation
First Directors 2 needed for a public company
All directors can use a service address, but can elect to state that this is also their residential address (“opt-in”)
Service address can be stated as “The company’s registered office”
PERSONNEL
Subscribers to the memorandum
At least one director must be a natural person
Company has to maintain a separate register of directors’ residential addresses, and file details with the registrar
Neither the company nor the registrar can disclose a director’s residential address without his / her permission or to an official body such as the Insolvency Service or to a credit reference agency (criminal offence)
Problem of historic filings
Former names (maiden names no longer excluded)
Corporate directors (registration details required)
Company secretary
Required qualifications for a public company
No secretary required for a private company
Minimum age of 16 for directors
Other directorships (no requirement to list)
Introduction of “Authorised signatories”
Problems with execution of documents
Authenticated by subscribers
Application for registration
No “objects clause” in memorandum, prescribed form only
Whether a limited company, and if so whether by shares or by guarantee
FORMATION DOCUMENTS
Memorandum of Association
Company has unlimited objects unless restricted by articles
Location of registered office
Proposed name
Whether a private or a public company Name and address of agent for subscribers (if appropriate) Statement of capital and initial shareholdings, or statement of
guarantee Statement of the first officers
Address of registered office
Articles of Association (unless a model form is adopted by default)
Aggregate nominal value of those shares
Separate details for each class of shares
Amount to be paid up / left unpaid on each share (including premium)
Prescribed information for identifying the subscribers (Money Laundering?)
Separate details for each subscriber / class of share
Statement of capital and initial shareholdings
Total number of shares to be taken by subscribers
Statement of amount guaranteed by each subscriber
Statement of proposed officers
Required particulars of first directors (those required to be stated in the register of directors and register of directors’ residential addresses)
In relation to a public company, required particulars of secretary/ies
Required particulars of authorised signatories
Consent of first officers to act as such
Statement of guarantee
Names and addresses of the subscribers
Statement of Compliance
Not a statutory declaration, but same penalties
Public companies (draft published June 2006)
Private companies limited by shares (draft published March 2005)
Private companies limited by guarantee
Default regime
Relevant model applies to a new company except to the extent excluded by its articles
No effect on existing companies
ARTICLES OF ASSOCIATION
Model Articles of Association
Existing companies can adopt with or without modifications
Transitional provisions
Can be made by statutory instrument
Details awaited
New company has unrestricted objects unless its articles restrict them
Special rules for charities and companies omitting “limited” from their names
Entrenched provisions
Specified articles may not be altered or repealed unless agreed unanimously or by a higher than 75% majority
Can be in original articles or inserted by unanimous resolution
Special notice to registrar on formation / alteration of articles
Objects
Objects clause of existing company treated as being in its articles
Statement of compliance on subsequent amendment
Notice to registrar on removal of entrenched provisions, with statement of compliance
Private companies with one class of shares: directors have unlimited authority to allot shares, grant options, etc, except to the extent that they are prohibited from doing so by the company’s articles; pre-emption rights can be disapplied by articles or special resolution
Other companies: authority must be conferred by articles or by a resolution of the company; must state the maximum amount of shares; must be subject to a time limit (maximum 5 years); can be renewed; similar pre-emption rights apply to current provisions of CA 1985
No requirement to file the contract where shares are allotted for a non-cash consideration
Directors’ authority to allot shares
Abolition of authorised share capital
Written resolutions of private companies no longer unanimous, can be signed by the requisite majority of eligible members
Still can’t remove a director or an auditor by written resolution
Written resolutions can be circulated in hard copy form, in electronic form or by means of a website; eligible members must be given a deadline by which to signify agreement to the resolution, or it will lapse
5% (or lower if so provided in the articles) of members may require circulation of a written resolution unless ineffective, defamatory, frivolous or vexatious
Rules about written resolutions cannot be disapplied by the articles
RESOLUTIONS
Ordinary (50% + 1) and special (75%) resolutions continue, extraordinary resolutions abolished
Model Articles for private companies do not contain any provisions about meetings. Unclear how to remove director / auditor!
Resolutions of public companies have to be passed at meetings
All general meetings (even if convened to pass a special resolution) can be convened on 14 days’ notice, unless the articles specify a longer period. Exception for AGMs of public companies (21 days)
Can be convened on shorter notice if holders of 90% of issued shares (excluding treasury shares) so agree; articles of a private company can specify higher percentage (up to 95%). Exception for AGMs of public companies
MEETINGS
Private companies not required to hold AGMs
Proxies can vote on a show of hands
Schedules contain provisions facilitating communications between a company and its members in electronic form or via a website. Special rules for traded companies, which avoid the need for agreement by the member or holder of debt security or debenture concerned
CLRB’s intention is that the duties can be relaxed or disapplied in the same way as they can be under the existing law
There are special rules for companies which are charities
Current draft Model Articles include partial relaxation of rules about conflicts of interests
It will only be possible to draft new articles of association dealing with directors’ duties once the CLRB has been enacted and the Model Articles finalised
DIRECTORS’ DUTIES
Codification of directors’ duties, but not remedies for breach
Exemption from liability for breach of duty, negligence, default or breach of trust in relation to the company is still void
Indemnity for these is void except in case of insurance (but excludes any excess payable) and “qualifying third party provision” (but excludes fines and regulatory penalties and costs of an unsuccessful defence or claim for relief)
A company’s articles can specify a higher percentage than a simple majority to rectify a director’s negligence, default, breach of duty or breach of trust in relation to the company
DIRECTORS - OTHER PROVISIONS
Abolition of upper age limit
New rules about names, directors, secretary and authorised signatories
New Model Articles
New rules about a company’s objects
New rules about allotment of shares
New rules about resolutions
New rules about meetings
SUMMARY OF IMPLICATIONS FOR COMPANY FORMATION
New prescribed forms
Codification of rules on directors’ duties
Need for articles to reflect changes