The Role of the Company Secretary in the Light of the Companies Act 2006 - Research Paper Example

A Critical Evaluation of the Role of the Company Secretary in the Light of the Companies Act 2006 Overview Part 12 of the Companies Act 2006 s that "a private company is not required to have a secretary" and "a public company must have a secretary" (Department for Business, Enterprise and Regulatory Reform of the United Kingdom). It is in the light of these provisions of the Companies Act of 2006 that the role of the company secretary is evaluated in both private and public companies. The objective of the Companies Act 2006 in general is to implement a lighter regulation on businesses and encourage long-term investment in the United Kingdom (Thomas, 2007). A review of the old company law by Benjamin Hopps of Sykes Anderson law firm found that the law is an over-regulation and has been too complex especially to small companies (Thomas, 2007). The new law hopes to reduce regulation that will allow companies to run their companies better and even cheaper. The changes brought about by the new law will result to savings of 250 million per year for businesses, inclusive of 100 million for the small businesses (http://www.bytestart.co.uk/ content/ legal/35_2/companies-act-guide.shtml) Private Company Secretary The new law brought anxiety to company secretaries in private firms because of possible abolition of the position. As part of the deregulation measures of the United Kingdom government, the requirement to have a company secretary is removed such that private companies can abolish the company secretary position starting April 6, 2008. A private company, however, has the option to retain its company secretary. The registrar of companies must be informed of the appointment of a company secretary to a private company and recorded in the company's register of secretaries. The private company secretary will perform the same obligations as a public company secretary as stipulated in the Companies Act 2006. The private company secretary, however, will not be subjected to qualification requirement that is required of a public company secretary (Department for Business, Enterprise and Regulatory Reform of the United Kingdom). Large private companies are expected to retain their company secretaries because of their important role in the company. Small private companies, on the other hand, may likely abolish the company secretary since the position is just created to be able to comply with the legal and administrative requirements of the old company law (Thomas, 2007). The position is often occupied by the spouse or a friend of management or a director of the company. Abolition of the company position in a small private company will reduce their operating costs. The company secretary of a small private company has limited administrative work and is often combined with other roles such as "advising the directors on legal matters, overseeing board papers, and generally acting as the conscience of the company" (http://www.netlawman.co.uk/info/role-duties-company-secretary.php). For large private companies, the company secretary has enormous responsibilities and the company is largely dependent on the expertise of a company secretary. With the implementation of the Companies Act 2006, the company secretary has to study the new law carefully, implement the changes and make sure that the company complies with the requirements of the law. The Companies Act 2006 includes significant changes of the old company law that was in force in the past 20 years. Company secretaries are now busy preparing their companies internally to iron out the processes to facilitate smooth company compliance. Based on the calendar of implementation of the new law, significant portions of the New Act were implemented on October 1, 2007 and April 6, 2008, with the remaining provisions to be in force by October 1, 2008 up to October 1, 2009 (Goold, 2008). According to Bridget Salaman of the Institute of Chartered Secretaries and Administrators, company secretaries anticipate increase in minute-taking requirements since each decision of the directors has to be recorded as required by the new law (Thomas, 2007). They must take note of how directors arrived at their decisions. The company secretaries will have to make sure that directors are kept up-to-date, aware of their duties and the shareholders' rights since the new law gave emphasis on these aspects. The company secretary will ensure that directors will not be sued by stockholders for negligence and other defaults and rights to bring derivative claims on behalf of the company. The company secretary must take note that the requirement for an Annual General Meeting is abolished under the new law. However, the company secretary must first comply with what is provided in its article of association and amend its constitution if the company decides to abolish the Annual General Meeting. Likewise, the company secretary must take note of new procedures governing voting and conduct of meetings (Department for Business, Enterprise and Regulatory Reform of the United Kingdom). For large companies, a company secretary cannot just be removed because it is a unique senior position with very important functions such as: a) ensuring that the company complies with relevant legislation and regulation and operates within the law; b) keeps board members informed of their legal responsibilities; c)as the company's named representative on legal documents and enters into contracts on its behalf ; d) ensures that the board procedures are followed and regularly reviewed; e) register and communicate with shareholders; f) ensure that dividends are paid to shareholders; g) maintain company records and prepare annual accounts (Cadbury Committee on Corporate Governance report). The company secretary acts as the chief administrator of the company. According to Hopps, the Companies Act makes e-communications as the primary tool in communicating with the shareholders of private companies to improve transparency (Thomas, 2007). Previously the shareholders had the option to receive information from the internet or receive communications through courier service. With the inception of the new law, a general scheme of electronic and web-based company communications had been introduced. By publishing information electronically, the administrative burden of company secretaries will be reduced. If a private company decides to remove the company secretary, any communication/documents that are usually addressed to the company secretary must be addressed to the company itself. Any other functions that the company secretary is authorized to do must now be done by a director or any authorized person designated by the directors of the company (Department for Business, Enterprise and Regulatory Reform of the United Kingdom). There is a need to advise Companies House on the abolition of company secretary position. Furthermore, the company's Articles of Association has to be amended. The company will encounter problems once the company secretary will be removed as follows: 1) The signatories in the bank application forms are both the company director and secretary so that the bank signatories have to be amended to be able to do banking transactions; 2) The removal to the company secretary will somehow remove the confidence that at least two persons are involved in operation of the company specially in company transactions, which is a distinguishing factor in comparing UK companies to sole trader businesses. 3) A feeling of fear, apprehension, uncertainty and possibly business failure may develop in the director of the company when the company secretary is removed or the "going it alone" syndrome. In registering a company, one director and one secretary are involved. Even if the role of primary decision maker rest with the director, having the secretary in a supportive role provided some comfort to the director. 4) The time and expense of redrafting memorandums and articles of association to abolish the secretary may discourage its implementation. (http://www.completeformations.co.uk/company-secretaries-after-6-april-2008.html) Public Company Secretary The requirement for a public company to have a company secretary is restated in the Companies Act 2006. While the United Kingdom government deregulates the private companies, public companies are more regulated with the requirement of company secretary and holding of annual general meetings. The qualification for a public company secretary is also specified. Government enforce tighter regulation on public companies since these companies issued securities through initial public offering in stock exchange or over-the-counter market. The government wants to protect the investing public. These companies are also required to meet stringent reporting requirements of the Securities and Exchange Commission, including the public disclosure of financial statements (http://financial-dictionary.thefreedictionary.com/Public+Company). In case the public company is in breach of section 271 of the Companies Act 2006, the Secretary of State will provide direction to the public company. The functions of a public company secretary are almost the same as that of a private sector secretary (Department for Business, Enterprise and Regulatory Reform of the United Kingdom). A public company secretary qualification requirement is specified in the new law to ensure quality service. He must have a requisite knowledge and experience to discharge the functions of secretary of the company. He must have sufficient experience in the office of public company secretary for at least three to five years immediately preceding his appointment as secretary or a barrister, advocate or solicitor called or admitted in any part of the United Kingdom (Department for Business, Enterprise and Regulatory Reform of the United Kingdom). . Unlike private companies, public companies are still required to hold annual general meetings held within six months before the end of the company's financial year. References: Department for Business, Enterprise and Regulatory Reform, United Kingdom, May 2008. www.berr.gov.uk Cadbury Committee on Corporate Governance Report, Guide to Establish a UK Limited Company - Company Secretary Manual ( http://www.ukincorp.co.uk/s-26-uk-company-secretary-guide.html) Goold, James , "United States: Companies Act 2006", June 26, 2008 Thomas, Caroline, "All Change", June 2007 (www.thecrossbordergroup.com/pages/1006/June+2007) Read More