legal updates
Wednesday, 24 Sep 2008
companies act 2006 provisions coming into force on 1 october 2008
The next phase of the new Companies Act comes into force next Wednesday.
Of the provisions coming into force, the most significant are in relation to directors and trading disclosures.
Directors
Companies must have at least one natural person as a director, meaning it is no longer possible for a company to be the only director of another company.A grace period is available until October 2010 if the company did not have any natural persons as directors up until the time the 2006 Act received royal assent (8 November 2006). There is also a new requirement for directors to be aged at least 16.
Duties of Directors
Further new statutory duties of directors, relating to conflict of interest, are now in force. The new duties, which mainly codify previous common law duties, are:
- to avoid a conflict of interest;
- not to accept benefits from third parties; and
- to declare interest in any proposed transaction or arrangement with the company.
Further provisions have been made to allow for directors to authorise potential conflicts and to declare any interest in existing transactions or arrangements with the company.
Shadow and even former directors should beware, as the duties can still apply – although it will be taken into account that shadow/former directors are not in the same position as a normal director.
Trading Disclosures
Companies should check the way their company information is displayed, disclosed and the information itself (whether it is displayed on the premises, electronically or in company documents) to ensure it is up to date and conforms to the new regulations. Failure to comply is an offence and could result in a fine for the company and every officer of the company in default (including shadow directors).
A Company’s name must be situated in such a manner that it can always be ‘easily seen’ by anyone visiting the premises. Also, the display or disclosure of information must be legible to the naked eye. This has changed a little from the old legislation, whereby the name was to be displayed on the outside of the building where the company carried on business. The name must be displayed at:
- its registered office;
- any location where the company carries on business – unless the location is mainly used for living accommodation; and
- any place where a company keeps its formal records available for inspection.
And also of note are:
- Company Names: There is a new right for individuals (rather than just companies) to object where a company’s name is so similar to their own trading name as to mislead the public. Also prohibited is the opportunistic registration of names.
- Financial Assistance: The whitewash procedure and the prohibition of financial assistance for private limited companies has been abolished. This will result in a significant reduction of paperwork for many corporate transactions.