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The Companies Act 2006 is probably one of the biggest legal reforms to face company bosses in a generation. Helen Mead from asb law spells out what you need to do ­ and should have already done.

After eight years¹ consultation, the Companies Act 2006 has at last made it onto the statute books. The implementation process itself has been phased to allow companies to prepare for the changes, and won¹t be fully in force until October 2008.

Arguably the biggest reform of company law in several generations, the key objective is to think small first. The priority is to reduce the burden on smaller private companies to boost enterprise, encourage investment and promote long-term performance. So will this move to minimise the regulatory burden liberate business? In part, yes, but it¹s far from a panacea.

Owners still need to protect their investments, and non executive directors will be under more pressure. But administration will be easier, particularly with regard to establishing a new business, as will the financing of MBOs and succession.

What should you do?

Administration is beginning to be simplified already, with the act acknowledging the growing part that electronic communication plays in all our lives.

Notice of general meetings can now be given in various electronic forms or by a notice on a company¹s Website, although shareholders still have a statutory right to be sent a hard copy of any such communication. This notice should also indicate the method of communication the company will accept in return. More time and cost-effective communication with shareholders reduces one of the perceived burdens of company legal procedures.

It¹s possible that shareholders will be able to communicate their acceptance to such notice via text message, although companies are unlikely to be able to send notices via text messages for some time yet.

The Institute of Chartered Secretaries and Administrators (ICSA) published a useful guidance note on electronic communications with shareholders under the Act last month (February), which includes recommendations in terms of the approach and best practice that companies may wish to adopt.

In the interest of greater efficiency, it is important to review the communications provisions of your company¹s articles and consider any amendments to them to capitalise on the flexibility now offered under the Act.

By now you should have also made sure that all order forms and other documents, whether hard copy or electronic, have been amended to include the company¹s registered name (not simply your trading name), number, place of registration and registered office. It¹s also important to amend your Website. If you haven¹t, the company could be liable for a fine, as could any officer of the company for authorising the issuance of a non-compliant document.

Parts of the act relating to public company takeovers and transparency provisions have also already come into effect. Any companies involved in a takeover will need to be aware and comply with these, especially in relation to the disclosure of major shareholdings and periodic financial reporting.

The majority of the provisions will come into force in October 2008, with transitional provisions due to be published later this year. The key areas covered are the codification of directors¹ duties, improved rights for shareholders and deregulation for private companies.

In respect of directors¹ duties, the act introduces a new duty to promote the company¹s success. Essentially this means that when making any decision on behalf of the company, in addition to considering the likely long-term consequences, directors will also be expected to consider the interests of the employees, the need to foster business relationships, the impact on the community and the environment and the need to act fairly between shareholders.

These requirements are quite onerous: while there are no major changes to implied duties, the codification will certainly define and reinforce those duties, and every business should take the opportunity of the preparation period to ensure their own house is in order and that directors are aware of their responsibilities.

Shareholders will benefit from improved rights, with indirect shareholders receiving more information and voting rights. Perhaps the most important factor to be aware of is the right of shareholders to sue directors individually for negligence or fraud. While any such action would require the permission of the court (which is likely to refuse if the claim is not likely to promote the success of the company), again it is imperative that directors fully understand the implications.

Going back to simplifying administration, deregulation for private companies will mean, among other things, that they will no longer be required to have a company secretary or to hold AGMs in order to conduct their business. They will be able to give financial assistance for the acquisition of their own shares, and reduce their share capital without the need for court approval.

With transitional provisions due to be published in the coming months, every company should be planning now how they will comply with the new regime.

There may be an 18 month window to prepare, but given the volume of changes, planning should begin sooner rather than later.

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