Summary
By contrast to some of our more detailed briefings on the Companies Act 2006 (the "2006 Act"), this note aims to provide a general overview of some of the ways in which the Act has made, or will make, the everyday administration of private companies in the UK simpler.
In particular, we will examine the following changes to the private company regime, which will be particularly welcome to company secretaries and anyone else with secretarial responsibilities in relation to private companies:
- There is no longer a statutory requirement to hold annual general meetings.
- It is no longer necessary for a company to lay its annual accounts and reports before the company in general meeting.
- Following the initial appointment of its auditors, a private company will no longer need to re-appoint its auditors each year.
- It is no longer necessary for private companies to have a company secretary.
- A private company can call meetings on short notice with the consent of the holders of 90% or more of the voting rights of the company.
- A private company can now pass written ordinary resolutions by simple majority of voting rights, and written special resolutions with a 75% majority.
- From 1 October 2009, directors of private companies with only one class of shares will be indefinitely authorised to allot shares.
Changes To The Private Company Regime
- No statutory requirement to hold annual general meetings
New provision in force from 1 October 2007
Before 1 October 2007, all UK companies were required to hold annual general meetings ("AGMs"), although private companies were entitled to dispense with this requirement by passing an elective resolution. Since 1 October 2007, the AGM requirement has been withdrawn for all private companies.
A private company will still be required to hold AGMs where it is expressly required to do so by its articles (though, for instance, not merely because its articles stipulate that directors will retire by rotation at the AGM). Private companies whose articles require them to hold AGMs, but who have elected to dispense with the requirement before 1 October 2007, will not be required to hold AGMs.
Recommendation: Articles should be reviewed and, if appropriate, amended to take advantage of this provision.
- No requirement to lay annual accounts and reports in general
meeting
New provision in force from 1 October 2007
Before 1 October 2007, all UK companies were required to lay their accounts and reports before the company in general meeting, although private companies were entitled to dispense with this requirement by passing an elective resolution. Since 1 October 2007, this requirement has been withdrawn.
In place of laying the documents before the company in general meeting, private companies are required to circulate their accounts and reports to members, debenture holders and anyone else who is entitled to receive notice of meetings.
- No requirement to appoint auditors annually
New provision in force from 1 October 2007
Before 1 October 2007, the directors of a UK company were entitled to appoint the company's first auditors to hold office until the first general meeting at which accounts were laid. Auditors would then be appointed by the shareholders at the first meeting, and each subsequent meeting, at which accounts were laid. Under the old regime, companies could elect to dispense with appointing auditors annually by passing an elective resolution.
Since 1 October 2007, the auditors of all private companies will be deemed to have been reappointed unless:
- they were appointed by the directors;
- the company's articles require actual re-appointment;
- the deemed re-appointment is prevented by the members;
- the members have resolved that they should not be re-appointed; or
- the directors have resolved that no auditor or auditors should be appointed for the financial year in question.
In consequence, a private company now needs to pass only one resolution to appoint its auditors, whether by way of initial appointment, or by way of confirming the directors' appointment.
Recommendation: Articles should be reviewed and, if appropriate, amended to take advantage of this provision.
- No requirement to have a company secretary
New provision in force from 6 April 2008
For the first time, an English company may be owned and officered by a single individual. Before 6 April 2008, all UK companies were required to have a minimum of two officers: at least one company secretary and one director (and the sole director could not also be the company secretary). Since 6 April 2008, private companies are not required to have a company secretary.
A private company whose articles immediately before 6 April 2008 expressly required it to have a secretary will still be required to have a secretary after 6 April 2008.
Recommendation: Articles should be reviewed and, if appropriate, amended to take advantage of this provision.
- Amendment to the provisions for calling meetings on short
notice
New provision in force from 1 October 2007
Before 1 October 2007, a company could duly convene a general meeting (other than an annual general meeting) on short notice only if so agreed by a majority representing not less than 95% of the voting rights of the company. A private company could elect to reduce this threshold to 90% by passing an elective resolution.
Since 1 October 2007, the default threshold for private companies convening a general meeting on short notice has been reduced from 95% to 90% of the voting rights of the company.
- Amendment to the provisions for passing a written resolution
New provision in force from 1 October 2007
Before 1 October 2007, a private company could use a written resolution in place of anything that could be done in general meeting, other than: (a) to remove a director from office; or (b) to remove auditors from office, in each case before the expiration of his or their term in office. A written resolution had to be signed by all of a company's members to be effective. A company's auditors had to be notified of the resolution either before or at the same time as the written resolution was sent to members.
Since 1 October 2007, private companies may pass written resolutions more easily. Written ordinary resolutions require only a simple majority of the voting rights of the company and written special resolutions a 75% majority. As under the old regime, a company cannot use the written resolution procedure to remove a director or auditor before the expiration of his or their period of office. In addition, the 2006 Act prescribes new procedural requirements which must be followed by any private company circulating written resolutions, as well as time limits for passing any resolution once circulated.
- No requirement to grant directors authority to allot shares
New provision in force from 1 October 2009
At present, all UK companies are required to seek authority from their members to allot any authorised unissued share capital in the company (this authority is popularly referred to as a "section 80 authority", after the relevant provision in the Companies Act 1985 (the "1985 Act"). A section 80 authority must state in each instance:
- the number and class of existing authorised shares to which it relates; and
- the period of time (up to a maximum of 5 years) for which it will be valid.
Under the current regime, private companies may elect to grant a section 80 authority in respect of a longer period (indeed, the period may be indefinite), although the authority must still identify the shares to which it relates.
Benefits: private companies with only one class of share capital
From 1 October 2009, the concept of authorised share capital will disappear. Simultaneously, private companies with only one class of shares will benefit from a relaxation of the regime governing authority to allot. Under the 2006 Act, such private companies will be indefinitely authorised to allot shares, except to the extent that they are prohibited from doing so in their articles of association.
Recommendation: Articles should be reviewed and, if appropriate, amended to take advantage of this provision or revised to make clear that the directors' require shareholder approval to allot shares.
Disadvantages: private companies with more than one class of share capital
This change will not benefit all private companies. The elective regime described above, which allows private companies to grant directors authority to allot indefinitely, will be repealed on 1 October 2009. Consequently, any private company with more than one class of shares will no longer be able to grant its directors an indefinite authority to allot, but will have to go through the same process as public companies for granting authority to allot, i.e., specifying: (a) the number of shares to which the authority relates; and (b) the period during which the authority is valid (i.e., up to 5 years). As a result, a private company which currently has more than one class of shares and which has currently elected to grant its directors an indefinite authority will find the new regime relating to allotment of shares less flexible than the current regime.
Conclusion
Without a doubt the biggest overhaul to the administration of private companies brought in by the 2006 Act has been to establish as default the various components of the 1985 Act elective regime, formerly available only on an opt-in basis. In addition to this, the 2006 Act has simplified private company administration by dispensing with the requirement to appoint a company secretary and by lowering certain key thresholds (e.g. for calling meetings on short notice and for passing written resolutions).
Further Information
If you have any questions or would like to discuss anything in this article in more detail, please contact Charles Claisse (charles.claisse@kemplittle.com) or Sam Kessler (sam.kessler@kemplittle.com) at Kemp Little LLP.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
