Transcript Document

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
ORIGINS
- Company Law Review, started in
1998
SIZE OF BILL
- Over 900 clauses plus 16
Schedules, 500+ pages
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 2006
ROYAL ASSENT
- Expected Autumn 2006
IMPLEMENTATION
- Expected October 2007 onwards
REGULATIONS
- None published yet, except for two
sets of draft Model Articles
SELECTION OF TOPICS COVERED BY CLRB (BUT NOT IN
THIS SEMINAR)
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Codification of Directors’ duties (in detail)
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Directors’ transactions with their companies (note that the
rules about quasi-loans and credit transactions are extended
to private companies except wholly-owned subsidiaries)
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Derivative Actions (new statutory procedure)
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Communications with Shareholders (use of websites is the
default position for quoted companies)
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Company records (can have a separate register for past
members)
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Registrar of Companies’ powers (to cleanse the register, etc)
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Reductions of capital (new procedure for private companies,
with no court proceedings)
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Auditors’ liability (able to limit by a liability limitation
agreement)
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Accounting requirements (revised - OFR abandoned and
replaced by Business Review for all except small companies)
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Aveling Barford v Perion (problems of transfer of non-cash
assets at book value removed so long as company has
distributable profits)
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Redenomination of share capital into foreign currency (easier,
no reduction of capital)
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Variation of class rights (simplification, no distinction between
rights in memorandum and those in articles)
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Takeovers (Implementation of the Takeovers Directive)
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Transparency (implementation of the Transparency
Directive)
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Registration of charges (not in CLRB, details awaited)
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Business Names (control via regulations for individuals,
partnerships and LLPs)
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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)
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Abandonment of Company Law Reform Power, reliance on
Legislative and Regulatory Reform Bill?
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Consolidation of existing Companies Acts
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Extension to Northern Ireland
TOPICS RELEVANT TO COMPANY FORMATION
NAME OF COMPANY

Names indicating a connection with H M Government / Local
Authority / public authorities specified in regulations
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Use of symbols, accents and punctuation
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Use of characters and signs (especially at the beginning of a
name)
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Prescribed standard style or format
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Proscribed words

“Same As” rules
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“Too like” rules and Company Names Adjudicators; effect on
“opportunistic registrations”
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Similar requirements to CA 1985 if “limited” omitted
PERSONNEL
Subscribers to the memorandum

only one needed for a public company
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become holders of shares on incorporation
First Directors
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2 needed for a public company
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At least one director must be a natural person
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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”
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)
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Problem of historic filings
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Minimum age of 16 for directors
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Other directorships (no requirement to list)
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Former names (maiden names no longer excluded)
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Corporate directors (registration details required)
Company secretary
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Required qualifications for a public company
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No secretary required for a private company
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Problems with execution of documents
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Introduction of “Authorised signatories”
FORMATION DOCUMENTS
Memorandum of Association
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Authenticated by subscribers
No “objects clause” in memorandum, prescribed form only
Company has unlimited objects unless restricted by articles
Application for registration
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Proposed name
Location of registered office
Whether a limited company, and if so whether by shares or by
guarantee
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
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Address of registered office
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Articles of Association (unless a model form is adopted by
default)
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Statement of capital and initial shareholdings
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Total number of shares to be taken by subscribers
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Aggregate nominal value of those shares
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Separate details for each class of shares
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Amount to be paid up / left unpaid on each share (including
premium)
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Prescribed information for identifying the subscribers (Money
Laundering?)
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Separate details for each subscriber / class of share
Statement of guarantee
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Names and addresses of the subscribers
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Statement of amount guaranteed by each subscriber
Statement of proposed officers
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Required particulars of first directors (those required to be
stated in the register of directors and register of directors’
residential addresses)
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In relation to a public company, required particulars of
secretary/ies
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Required particulars of authorised signatories
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Consent of first officers to act as such
Statement of Compliance
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Not a statutory declaration, but same penalties
ARTICLES OF ASSOCIATION
Model Articles of Association
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Public companies (draft published June 2006)
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Private companies limited by shares (draft published March
2005)
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Private companies limited by guarantee
Default regime
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Relevant model applies to a new company except to the
extent excluded by its articles
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No effect on existing companies
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Existing companies can adopt with or without modifications
Transitional provisions
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Can be made by statutory instrument
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Details awaited
Objects
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Objects clause of existing company treated as being in its
articles
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
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Can be in original articles or inserted by unanimous resolution
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Special notice to registrar on formation / alteration of articles
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Statement of compliance on subsequent amendment
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Notice to registrar on removal of entrenched provisions, with
statement of compliance
Directors’ authority to allot shares
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Abolition of authorised share capital
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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
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No requirement to file the contract where shares are allotted
for a non-cash consideration
RESOLUTIONS

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Ordinary (50% + 1) and special (75%) resolutions continue,
extraordinary resolutions abolished
Written resolutions of private companies no longer
unanimous, can be signed by the requisite majority of eligible
members
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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
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Rules about written resolutions cannot be disapplied by the
articles
MEETINGS
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Private companies not required to hold AGMs
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
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
DIRECTORS’ DUTIES

Codification of directors’ duties, but not remedies for breach

CLRB’s intention is that the duties can be relaxed or
disapplied in the same way as they can be under the existing
law
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There are special rules for companies which are charities
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Current draft Model Articles include partial relaxation of rules
about conflicts of interests
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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 - OTHER PROVISIONS

Abolition of upper age limit

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)
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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
SUMMARY OF IMPLICATIONS FOR COMPANY FORMATION

New prescribed forms
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New rules about names, directors, secretary and authorised
signatories
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New Model Articles
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New rules about a company’s objects
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New rules about allotment of shares
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New rules about resolutions
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New rules about meetings
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Codification of rules on directors’ duties
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Need for articles to reflect changes