Companies Bill To Save UK Business Millions

The Companies Bill received Royal Assent today and introduces sweeping changes to simplify and improve company law. Company law has been substantially rewritten to make it easier to understand and more flexible - especially for small businesses.

In bringing forward the Companies Act 2006 the Government has listened carefully to the concerns and wishes expressed by a wide range of business groups, shareholders and other interested parties.

Secretary of State Alistair Darling said:

"This Act will help ensure Britain remains one of the best places in the world to set up and run a business. It makes sure the regulatory burden on business is 'light-touch', promotes shareholder engagement and will help encourage a long-term investment culture in the UK.

"We will continue to work closely with interested parties in implementing the Act. In particular, we will work with the business community to ensure widespread and effective communication of the Act's provisions so that all parties fully understand the measures and are in a position to take advantage of the benefits."

The Act will help businesses save £250million a year, including up to £100m for small businesses.

The first measures to be introduced will include provisions on company communications to shareholders. These will be introduced in January 2007, saving businesses over £50million by using electronic communications rather than paper.

The clauses on takeovers which give the Takeover Panel power to make rules within a statutory framework will also be one of the first areas introduced. Measures relating to disclosure to the market and clarification of the liability attaching to such disclosures will also come in at an early stage.

All parts of the Act will be in force by October 2008.

The Companies Act includes measures that:

•   give greater clarity on directors' duties, including making clear that they have to act in the interests of shareholders, but in doing so have to pay regard to the longer term, the interests of employees, suppliers, consumers and the environment;

•   encourages narrative reporting by companies to be forward-looking, covering risks as well as opportunities, with explicit requirements for quoted companies; and gives

•   an option for all directors and shareholders to file a service address on the public record rather than a private address.

Shareholder engagement will also be promoted through enhancing the powers of proxies and making it easier for indirect investors to be informed and exercise governance rights in the company. The comprehensive package also includes allowing shareholders to agree to limit the auditors' liability to the company to what is fair and reasonable.

The Act also includes a new offence for recklessly or knowingly including misleading, false or deceptive matters in an audit report.

A power is provided in the Act to require institutional investors to disclose how they use their votes. The Government has made clear that they hope that the market will provide such disclosure without the need to exercise the power and that regulations would not be put in place without prior consultation and a detailed cost analysis.

The Act also paves the way for the Financial Reporting Council to undertake regulation of the actuarial profession, following the Penrose report into Equitable Life.

The Act includes measures to benefit private companies including:

•   new model articles;
•   no need to have a company secretary unless the company wants one; and
•   no need to have an AGM unless the company wants one.

The Act extends to the whole of the UK, so that there will no longer be a separate regime for Northern Ireland.

Find out more about the Companies Act

1. The Companies Act 2006 is the largest Act ever, with 1300 sections. About a third of this is a straightforward restatement of the previous law in clearer and simpler language. It replaces the company law provisions of the 1985 Companies Act, the 1989 Companies Act and the 2004 Companies (Audit, Investigations and Connuity Enterprise) Act, except for the self-standing provisions on community interest companies and provisions on investigations (which go wider than companies).

2. Explanatory Notes on the Act, together with a Regulatory Impact Assessment and a table of derivations and destinations will be published shortly.

3. The Act promotes forward looking narrative reporting by companies covering risks as well as opportunities, together with explicit requirements for quoted companies to report, as part of their business review and to the extent necessary for an understanding of the business, information on

(i) environmental matters
(ii) employees and
(iii) social and community issues

including information on any policies relating to these matters and their effectiveness, plus contractual and other relationships essential to the business.

Posted 08/11/06

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