In good company

This note is intended to provide a brief introduction to what has been described as the “gargantuan” new Companies Bill.  The Bill introduces wide-ranging reforms to a number of areas of UK company law, a selection of which are highlighted below.

Current Status of the Bill

The Bill is currently progressing through Parliament, having completed the Commons Committee stage on 20 July 2006, and may be subject to further change.

When will the Bill come into effect?

The DTI expects that the Bill to receive Royal Assent in the autumn 2006, with most of the provisions coming into force not earlier than April 2007.

Origins of the Bill

The Bill was first introduced into Parliament in autumn 2005 as a result of a review and consultation process into UK company law launched in 1998. The Department of Trade and Industry (“DTI”), which is responsible for the Bill’s passage through Parliament, intends that the Bill will make company law easier to understand and be more flexible - especially for small businesses.

Will the Bill fully replace the Companies Act 1985?

Following an amendment to the Bill in July 2006, the Companies Act 1985 is to be consolidated into the Bill and create a single company law regime for the whole of the UK. 

What are the objectives behind the Bill?

The key objectives which the Government wishes the Bill to achieve are:

• enhancing shareholder engagement and a long term investment culture;
• ensuring better regulation and a “think small first” approach;
• making it easier to set up and run a company; and
• providing flexibility for the future.

Please click here to access further information in relation to the new constitutional framework.

A company’s objects will be unrestricted, unless the Articles of Association specifically restrict them.  This shall apply to both newly incorporated and existing companies.  This means a company will normally be permitted to pursue any activity permitted by law.

There will also be a new set of model articles of association for public companies, private companies and private companies limited by guarantee.

Financial Assistance and Maintenance of Capital

Under the Bill, the prohibition on the giving of financial assistance by a private company for the purchase of shares in itself will be abolished and therefore the “whitewash” procedure will no longer be necessary.  The general prohibition on the giving of financial assistance by public companies remains.

Private companies will also have the ability to reduce their capital without court approval by way of a special resolution supported by a solvency statement by the directors.

The Bill abolishes the requirement to have an authorised share capital for both private and public companies.  The requirement to state a company’s “authorised” share capital in the Memorandum of Association will cease.

Further Information

For further information on any of the issues above or any other aspect of the Companies Bill, please contact Neil Palmer on 020 7861 4268.