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Company law easier to understand

Spring 2007

The largest Act that Parliament has ever passed aims to simplify company law and generally reduce the regulatory burden once all its provisions have come into effect. The Companies Act 2006 should also make company law easier to understand.

Directors will have a legal duty to act in the way they consider would be most likely to promote the success of the company in the interests of the shareholders, but they must also have regard to the environment and the interests of employees, consumers and suppliers.

Medium and large companies will have to publish a directors’ report containing a business review. The report should be forwardlooking and cover risks and opportunities. Quoted companies will need to include information on environmental matters, employees and social and community issues. They will also have the option of not publishing the operating and financial review that was previously required.

In a welcome move, all directors and shareholders will have the option of filing a service address rather than their private address on the public record. Private companies will be able to choose whether or not to have an annual general meeting and a company secretary. New model articles will contain simpler internal rules and give companies unlimited objects.

One of the first measures to be introduced – on 20 January 2007 – allows companies officially to communicate with shareholders electronically. The government has said the rest of the provisions will be introduced during the remainder of 2007 and 2008, with the whole Act implemented by October 2008.

Hilton Sharp & Clarke