The Companies Act 2006 – requirements and implications
The concept of a company’s limited liability, as confirmed in the 1897 case of Salomon v Salomon & Co Ltd, is the cornerstone and perhaps single most important principle of English company law. What was in effect created out of that case was a device enabling individuals to engage in trade where, if that trade was successful, it would engineer profits, but if it was unsuccessful it would not pay its debts in full. The concept is based on the pretext that the company is an artificial legal personality that can be viewed as a distinct being separate from that of its creators, directors and members. Until recently, the legislature has imposed rather stringent rules on individuals wishing to set up limited companies and thus benefit from the protection of limited liability. However, it is evident that the legislature has relaxed its approach as the new provisions contained in the Companies Act 2006 come into force.
Passed in 2006, this Act reaches the final stage of implementation this October and will change the law for all companies operating in the United Kingdom. A number of these changes have been specifically introduced to make it easier to set up a company. In particular, a company’s memorandum and articles of association (which define the company’s powers and internal regulations) are to be simplified. There will be a new set of model articles for private companies which will be shorter and simpler than those presently adopted by companies and written in plain language. The memorandum of association will be much simplified and will no longer contain an objects clause, so there will be no restriction on the scope of the company's activities unless it chooses to restrict those activities in its articles.
As well as introducing a number of changes to the constitutional documents, the new legislation allows companies a greater degree of flexibility in choosing how they operate. The Act has already seen the implementation of less onerous rules for private companies. For example, it is no longer necessary to appoint a company secretary, nor is it a requirement to hold an annual general meeting (although you may still opt to do so if you wish). It is also no longer a requirement to obtain a unanimous vote for resolutions and the members may now agree in writing to resolutions, subject to any variation to the contrary in the articles.
The Act constitutes the biggest change to company law in over 20 years and will have a lasting effect on the way that companies are set up and run. Given that the Act contains 1,300 clauses, it could be considered prudent for business owners to pay close attention to the final text and to seek legal opinion for clarification if needed.
If you are interested in setting up a new business or would like any further information and professional advice in relation to the Companies Act 2006 or any other company commercial law matters, please contact either Chris Clifton-Moore or Geoff Hindle.
This publication provides general information and does not constitute legal advice. You should only act after, or refrain from acting until, you have received specialist advice. © Copyright in the content of this publication is owned by Woolley Bevis Diplock LLP. It is believed to be correct as at 1 October 2009 but is subject to change. To be sure you have the most up to date information, please contact us.
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