Critical Evaluation of The Companies Act 2006 and its comparison to The Companies Act 1985

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The Companies Act 2006 aims to ensure that a company can operate with more flexibility and choice. The Companies Act 1985 was extremely regulated and facultative; ‘Company law developed mainly with the public company in mind. The provisions that apply to private companies are often expressed as an exception to the provisions applying to public companies, making them difficult to understand.’ The aim of the new act is to create clearer and less structured regulations that private companies can understand and adapt to the way in which they wish to operate. The simpler articles of association and the de-regulated approaches in which company decisions can be made in theory create a less structured and more efficient basis on which a company can function and reflect modern business requirements.

The directors of a company are responsible for the general running of a company and as such they are expected to make decisions on a regular basis e.g. appointing a chairman of the board and buying or selling Company assets. Board meetings are the forum in which they make their decisions and each must be evidenced by keeping minutes of all the decisions made. Minutes are a legal requirement. Any director can keep minutes of meetings under the new act. The CA 1985 required all companies to have a company secretary but that provision has been removed. However, a company may wish to amend the Default Articles to require that a company secretary be appointed. The impact of the Companies Act 2006 on director’s decisions has resulted in the process being less regulated and more current. For example, if a director was unable to attend a board meeting, he or she would be able to participate by means of a video or phone conference. This is a highly relevant advancement due to the fact that society is increasingly becoming more reliant on technology. The fact that a director can attend a meeting via video conference is a much more efficient system than having to wait until each director can be present at the same time.

Under Default Article 8, it is not required that a physical board meeting be held, rather a written resolution can be used to make a decision. All directors must agree to the written resolution and evidence this in writing, usually by a specified date. Records of the agreements must be kept in the same way minutes of a meeting must be kept. This streamlines the way in which directors meet decisions as they can quickly make a decision on a matter which they know they are all in agreement with.

An alternate director can be appointed to attend a meeting in place of a principle director under s308 CA 1985. The alternate director may speak, vote and act for the director who he or she is representing. There is no marked difference in this regulation between CA 1985 and CA 2006, however it does afford for a more productive meeting process, as if a director is unable to attend a meeting the others need not wait until he/she can attend to make a decision if an alternate is in place.

The shareholders of a company have the duty to decide on more ‘major’ issues that a company faces. General meetings are the forum in which shareholders make decisions. There are two types of general meetings; Annual General Meetings (AGMs) and Extraordinary General Meetings (EGMs). EGMs are the forum in which members make the majority of their decisions. In order to hold an Extraordinary General Meeting there must be fourteen clear days notice for both ordinary and special resolutions under s307(1) CA 2006. The idea of ‘clear’ notice means there must be fourteen straight days between the day of the meeting and the day of the receipt of the notice. This system is vital as it allows a fair amount of time for the notice to be communicated to all the members. As the members use EGMs as their main forums for decision making it is likely that each member would wish to be present as a decision could greatly affect the running of the company, and as such the value of the shares. As a member has invested their money in the company it is essential that they should have a say in all major decisions made. The requirement of fourteen clear days ensures that even if a member was out of the country for a period of time, notice could still be reasonably communicated to them.

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 Although under the 2006 Act there is no legal requirement to hold an AGM, a company can change its default articles to require that one is held. The notice period for AGMs is a bare minimum of 21 days, which may or may not be clear days.

A general meeting of a company may be held by short notice, i.e. less than the length of time set out by the Companies Act 2006 s307.  For Annual General Meetings (AGMs) there must be unanimous agreement of the members to hold a meeting by short notice. For Extraordinary General Meetings (EGMs) ...

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