How successfully does the Companies Act 2006 promote shareholder engagement with their company? 1. Introduction The development of effective rules in regard to business activities in markets worldwide can be characterized as a challenging task. Market conditions are not stable, increasing the risks for potential failures, either in the short or the long term…
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In UK, where commercial activities are highly developed, the specific problem is clearer. The introduction of the Companies Act 2006 aimed to cover the gaps of previous legal rules in regard to the regulation of companies across UK. It seems that this target has been achieved. It should be examined whether the provisions of Companies Act 2006 manage to secure the protection of shareholders rights, as a factor influencing their engagement with the organization. The ability of the Companies Act 2006 to promote shareholder engagement with their organization is reviewed in this paper. It is proved that the specific legislative text has highly contributed in the increase of shareholder engagement with their organization, even if, in certain cases, the simultaneous development of other initiatives, such as the intervention of the Financial Services Authority (FSA) has been considered as necessary. The elements of shareholder engagement with their organization are critically explained aiming to show the value of the specific concept for the standardization of business performance in UK, as also in other countries worldwide. 2. Shareholder engagement with their company and the Companies Act 2006 2.1 Aspects of shareholder engagement with their company as related to the Companies Act 2006 Shareholders have a critical role in the success of businesses in all industries. This fact has been highlighted in the case law developed in the particular field. For example, in Item Software (UK) Ltd v Fassihi it was held that the director who has acted without taking into consideration the interests of the company violated the organization’s rules and he should be punished accordingly. In West Coast Capital (Lios) Limited (2008), a case heard before the Scottish Courts, it was held that a director has the responsibility ‘to promote the success of the company for the benefit of its members as a whole’ (Warren J. in West Coast Capital Limited 2008). The term ‘company’ in the above case is used in order to reflect the members of the company and not the company as a legal entity. According to the above cases, directors have to align their decisions with the interests of the company’s members, meaning primarily the shareholders (Birds et al. 2010, p.197). These cases reflect the value of shareholders in modern organization; therefore, the shareholder engagement with the organization should be a critical part of corporate governance, so that business success is secured. In the legal rules focusing on the regulation of companies, the protection of the interests of shareholders is also recognized as a key priority. In Companies Act 2006 the value of shareholder engagement with their organization can be derived from various provisions, as for example, the s32, which defines the obligation for providing constitutional documents to the company’s members, the s91, where the requirements for share capital are set, the sections 146-151 that refer to the information rights of a company’s members, the sections 171-177 that set the obligations of directors in regard to their position and so on (Companies Act 2006). The forms of shareholder engagement with their company are not common in all organizations. However, in general, the efforts of the shareholders to support all plans of their firm are
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