A Guide to The Companies Act 2006 - Term Paper Example

Introduction The Companies Bill, formerly called the Company Law Reform Bill, received Royal Assent on the 8th November 2006 As a result of the assent being received, the largest piece of legislation to be ever made in the United Kingdom is the Companies Act, 2006. The statutory legislation consists of a mammoth 1300 sections.2 Inspite of the intimidating length of the statutory legislation, the material that falls within it can be broadly classified and divided into two broad categories:- Law specific to public companies that have listed shares; and Law that applies to private companies. As the broad areas of law dealt with by the legislation are conveniently divided into the law of companies which are public nature and on companies which are private in nature, it serves the dual purpose of being both a very effective as well as a comprehensive piece of legislation. The primary purpose of enacting this legislation was to increase the competitiveness of the UK in the field of international trade and also ensure the creation of an effective legal and regulatory framework within which business within the UK operates and also promotion of enterprise, promoting growth and provide the right conditions for investment and employment and create them as and when necessary.3 The Act is a comprehensive code of company law. It restates and replaces most of the Company Law provisions of the 1985, 1989 and 2004 (Audit, Investigations and Communities Enterprise) Acts and also introduces a wide range of changes to a number of areas such as formation of company, directors’ duties and liabilities, shareholders’ rights, share capital maintenance etc. The intention is for all parts of the Act to be implemented by October 2008 although some parts may be introduced before than and others are already in force.4 Behind the 1300 sections of the Act lie 4 key themes which are ensuring the enhancement of shareholder engagement and a long-term investment culture; ensuring better regulation and a Think Small First approach. Through the Act, it is expected that it will now become far easier to set up and run a company; and also provide flexibility for the future.5 The advent of the Companies Act, 2006 will bring about a number of changes for companies during 2007 and 2008. One such change will be the abolition of the need to appoint a company secretary for a private company.6 Part 12 of the Act of 2006 deals with the role that company secretaries have to play in any organization, Sections 270-280 from a part of Part 12 of the Act. The head note to Section 270 states that, a Private company not required to have secretary. With the sub sections stating, (1) A private company is not required to have a secretary. (2) References in the Companies Acts to a private company “without a secretary” are to a private company that for the time being is taking advantage of the exemption in subsection (1); and references to a private company “with a secretary” shall be construed accordingly. (3) In the case of a private company without a secretary— (a) anything authorised or required to be given or sent to, or served on, thecompany by being sent to its secretary— (i) may be given or sent to, or served on, the company itself, and (ii) if addressed to the secretary shall be treated as addressed to the company; and (b) anything else required or authorized to be done by or to the secretaryof the company may be done by or to—(i) a director, or (ii) a person authorized generally or specifically in that behalf by the directors. It is the role of the company secretary in a company that the present paper seeks to critically examine. From a mere reading of the above provisions it becomes easy to understand that the primary effect that the abolition of the post of company secretary has, is that it ensures the simplification of the manner in which private companies take decisions. By simplifying the decision making process for private companies, the framers of the statute have been able to uphold the intention of increasing business efficiency amongst companies. Thus ensuring a facilitation of trade amongst the smaller private companies of the country. To consider more closely the provisions of the Act. Section 271 of the Act states that A public company must have a secretary. The Act goes on to define a private company as being “any company that is not a public company”. However, if a private company decides to appoint a company secretary, then the authority of a private company secretary will be the same as that of a public one. Therefore, the appointment of a company secretary to a private company must be notified to the registrar of companies and be recorded in the company’s register of secretaries. As per Section 273 of the Act, the minimum qualifications which a company secretary must have include - having held the position of secretary in the office of a public company for at least three of the five years immediately preceding his appointment as the company secretary. This is further coupled with the necessity of being either a barrister, advocate or solicitor in any part of the United Kingdom. Sections 273 2(b) and 273 (3), state further that the individual must also be a member of bodies such as the Association of Chartered Certified Accountants or the Chartered Institute of Management Accountants; or the Chartered Institute of Public Finance and Accountancy, amongst various others. Apart from all of the above, the individual must also appear to the directors as being an individual who is capable of discharging the functions of secretary of the company. Section 274 provides for a situation when the office of company secretary is vacant or the company secretary unable to act. His functions can if necessary be performed by an assistant or deputy secretary, and if there is no assistant or deputy secretary and no individual capable of acting as the company secretary, then any person who is authorized by the directors of the company to perform the duties of the position of company secretary, must do so. The decision to abolish the post of a company secretary would mean the taking away of the requirement to hold Annual General Meetings and would also be allowing a far greater use of written resolutions. Although the requirement of a company secretary has been removed, the opportunity remains and most private companies continue to have a company secretary.7 The position of company secretary had come to be respected as being a very senior position in all private companies. It has even resulted in formation of an American counterpart to the position, namely, corporate secretary. Before the Companies Act, 2006 it was necessary under company law, as an essential pre-requisite was that every limited company had to have a formally appointed company secretary.8  In fact, all private limited companies should have had at least one director along with a company secretary. Further, where the company had a sole director, that director himself could not also be the company secretary.9 This also ensured that a company secretary would always have to be appointed whenever a company was first incorporated.10 The company secretary was expected to have regular dealings with the Companies House, as this was where the public records about the company would ordinarily be held.11  The Companies House is an Executive Agency of The Department of Trade and Industry. The headquarters are in Cardiff, with an information centre in London. The agency also has Trading Fund status which allows the agency to directly manage its own finances. A Company Secretary was earlier appointed, as per legal provisions, when the company was first incorporated.  Any subsequent changes to the particulars of the company directors or secretary, for example, changes in their name or address, must by law be notified to Companies House using a standard form - 288c.  When either a director or the Company Secretary resigns, form 288b must be completed and sent to the Companies House. When a new director or secretary is appointed, form 288a should be used. These provisions of law which are related to the submission of information regarding changes in the individuals, or in the addresses and other personal details of the individuals occupying the position of company secretary, still appear to be relatively unchanged even under the Companies Act of 2006. The Functions of the Company Secretary The company secretary is essentially an officer of the company. In spite of what the name suggests, the role is neither a clerical nor a secretarial one in any sense whatsoever. The company secretary ensures that the company complies with all the relevant regulations and legislations which may be in force at any particular point of time. Apart from this, the company secretary also keeps the board members informed of the numerous legal responsibilities which they are expected to fulfill by virtue of the higher position which they occupy in the hierarchy of the company. From the above it becomes obvious that the duties of the company secretary are not defined specifically within the ambit of company law.  However, these may be divided generally into three main areas:12 maintaining statutory registers completing and filing statutory forms meetings and resolutions. With regards to the maintaining of statutory registers, it should be noted that all companies must maintain up to date registers of their key details, which must include:13 a register of members a register of directors and secretaries a register of directors’ interests in shares and debentures a register of charges. With reference to the completing and filing of statutory forms, it is the duty of the company secretary to ensure amongst numerous other things that Forms relating to filing of annual accounts; the filing and completion of the annual return are done in time.14 With respect to the third broad head, namely the organization of meetings and the passing of resolutions, here the role of the company secretary would be to ensure that proper notice of meetings is given to those members of the organization who are entitled to attend the meetings. It is also the responsibility of the company secretary to ensure that copies of all resolutions and decisions taken at meetings are sent to the Companies House within the relevant time frame.15 What becomes certain from the above is that, even the company secretary may be criminally liable for defaults committed by the company, for example, failure to file in the time allowed, any change in the details of the company’s directors and secretary and the company’s annual return.16 However, the main responsibilities of a company secretary are administrative in nature - ensuring documentation is completed and returned to Companies House and signing off company accounts (although only the directors have any legal responsibility for the contents). The exact role will depend on the size of the company, with only occasional administrative tasks required by the typical small business.17 It is interesting to note that the company secretaries are quite often named as the representatives of the company on legal documents, thus making it their responsibility that the company and its directors operate within the law. Further, it is also their duty to register and communicate with all the shareholders, ensure the paying of dividends etc. Conclusion A private company that dispenses with the services of a Company Secretary will feel his absence in a profound manner, when it faces practical difficulty and problems relating to compliance with the various regulations as stipulated by law from time to time. Although the need to appoint a company secretary in a private company is being abolished, there will be a number of statutory procedures that companies must continue to comply with. The Company Secretary will definitely be missed by them and sooner rather than later they shall re-appoint one. Bibliography Books 1. Ashton, Helen, The Company Secretarys Handbook: A Guide to Duties and Responsibilities, Kogan Page Publication, 2006. 2. Bourne, Nicholas, Principles of Company Law, 3rd Edition, Cavendish Publications. 3. Davies, Paul L., Introduction to Company Law, Clarendon Law Series, 2002, Oxford University Press 4. Dine, Janet, Company Law, Palgrave Mcmillan Law Masters. 5. Doyle, Christopher, The Company Secretary, Round Hall Publishing. 6. Gale, Steve, Alistiar Alcock, John Birds, Companies Act, 2006 - The New Law, 2007, Jordan’s New Law Publications. 7. Keenan, Dennis, Smith and Keenan’s Company Law, 12th Edition, Pearson Longman Education. 8. Luke, Thomas, Corporate Secretaryship, ICSA Professional Development, ICSA Publishing, 3rd edition, 2005. 9. Mayson, Stephen, Derek French, Christopher Ryan, Mason French and Ryan on Company Law, 2007, 21st Edition, Blackstone Publication. 10. Smiddy, Linda O., Lawrence A Cunningham, Soderquist on Corporate Law and Practice, 3rd Edition, Corporate and Securities Law Library, 2007 11. Steinfeld, Alan Martin Mann, Richard Ritchie, Elizabeth Weaver, Blackstones Guide to the Companies Act, Blackstone Publications, 2006. 12. Talbot, Lorraine, Critical Company Law, Routledge Cavendish Publications, 2007. 13. The Companies Act 2006 (Public General Acts - Elizabeth II), Her Majesty’s Stationery Office. 14. Van Duzer, P., Companies Act: A Guide for Private Companies, Jordan’s New Law Publications, 2006. 15. Walmsley, Keith, Butterworths Company Law Handbook: The Companies Act 2006, Lexis Nexis Publications, 2007. 16. Webster, Martin (Ed.), The Director’s Handbook: Your Duties, Responsibilities and Liabilities, Pinsent Masons & Institute of Directors Publications, 2006. 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