FAQS Companies Act 1985

Contents

Who do I contact for further Information not covered in the FAQS

Email Address: Itiola.durojaiye@berr.gsi.gov.uk

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Q1 What rules cover forming a Company

Two or more persons may form a company, or one if it is a private company, and this company may be limited by shares, guarantee or an unlimited company (section 1 of the Companies Act 1985)

The requirement is for persons and not individuals and a body corporate (including a limited company) will suffice, subject to constraints in section 23 (membership of holding company) and section 375 (representation of corporations at meetings). 

The rules on company formation will change on 1 October 2008 as a result of the Companies Act 2006.

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Q2 What rules cover Company Secretaries

Every company shall have a secretary who may not also be a sole director (section 283 of the Companies Act 1985). The Secretary's particulars must be notified to Companies House. For further information visit the Institute of Company Secretaries and Administrators website. From April 2008 Private Companies will not have to appoint a Company Secretary unless they choose to do so.

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Q3 What are a Directors’ Duties?

There is no single guidance on directors’ duties, which are set out in a range of statutory, and common law provisions.

Companies House has guidance booklets on filing of the other responsibilities in relation to it.

You may find it helpful to look on the Institute of Directors’ website as well as the Institute of Chartered Secretaries and Administrators for guidance and pointers to reference books on the subject. From October 2007, the main, general duties of directors will be provided by the Companies Act 2006. 

 

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Q4 What is the definition of a Company Director

The definition of director given at section 741(1) of the Companies Act 1985 ‘includes any person occupying the position of director by whatever name called.  This definition can also be found in the Insolvency Act 1986 section 251 and the Company Directors Disqualification Act 1986 section 22, where it is extended to include shadow directors.

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Q5 Who is eligible to be a Company Director?

Any legal person may be a Company director provided they have not been disqualified.

Check companies house guidance notes.

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Q6 What employment rights does a Company Director have?

An executive director (unlike a non-executive director who will not normally be an employee) will be an employee of a company like other employees, there are no special provision for directors in company law in relation to employment rights.

Separate provision may, however, be found in individual directors’ service contracts as well as a company’s articles of association.

For related issues you may find it helpful to look at:

1.   The Institute of Directors’ (IoD) website

2.   The Institute of Chartered Secretaries and Administrators (ICSA) website

How many directors must a company have?

Every company shall at least two directors, or at least one if it is a private company (section282 of the Companies Act 1985)

The directors can be the same people who are forming the company, or they can be different.

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Q7 What are the rules regarding the dismissal of a Company Director?

A company’s shareholders can remove a director at any time before the end of their period of office regardless of anything to the contrary that there may be in their articles of association or service contract.  To propose such a resolution a shareholder must give special notice and the company is obliged to send to the director a copy of the proposed resolution.  The director is also entitled to make written representations or reasonable length that the company must send to every shareholder who is sent notice of the meeting.  If the company receives these too late for them to be sent out to the shareholders, then the director is entitled to allow them to be read out at the meeting.

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Q8 What are the rules regarding the disqualification of a Company Director?

Disqualification of Company Directors is the responsibility of the Insolvency Service – see attached link to the relevant guidance note which is on the Insolvency Service website.

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Q9 How do I draw up Articles of Association?

All companies are required to adopt articles of association when they incorporate. Tables A to F of the Companies (Tables A to F) Regulations 1985 (SI 1985/805) set out standardised model articles, which companies can use as the basis for their own articles. Table A (SI 1985/805, Schedule) is the most commonly used Table; it sets out standardised articles for companies limited by shares, in two versions, one for private and one for public companies.


The phased implementation of Parts of the Companies Act 2006 has led to subsequent changes to Tables A, C and E to ensure that these Tables are not in conflict with the Companies Act 2006. Those referring to these Tables should ensure that they refer to the most up-to-date versions. The amendment regulations (SIs 2007/2541, 2007/2826 and 2008/0739) can be found on the OPSI website via the regulations link below.


Table A may be commonly modified, or even excluded completely, when a company’s articles of association are drawn up. However, if companies do not register their own articles of association, Table A applies by default.


For further about The Articles of Association and Table A-F of the Companies Act 2006 please see the links below.

Articles of Association

Regulations and Commencement Orders - made or before Parliament

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Q10 What rules cover minutes of Meetings?

Section 383 of the Companies Act 1985 requires every company to keep minutes of the proceedings of general meetings.

The minutes are to be kept at the company’s registered office and are open to inspection by the company’s members without charge (section 383 of the Act).  Alternatively, am member may request a copy of such minutes, on payment of a fee.  Shareholders are, therefore, entitled to write to the company requesting a copy of the minutes of the annual general meeting and should, under section 383 (3), be furnished with these within 7 days of the request made.  This section of the Act is enforced by Companies house.

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Q11 What rules cover the notice of Meetings?

The basic principle is that every member of the company is entitled to notice of a meeting, but the articles of association may take away this basic right from certain classes of members, eg from holders of preference shares in certain circumstances or from members who have given no address within the United kingdom.

Not less than 21 days notice in writing must be given (section 369(1)(a) of the Companies Act 1985) in the case of an annual general meeting, and not less than 14 days in the case of meetings other than the annual general meeting (section 369(1)(b) of the Act).

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Q12 What constitutes a Quorum?

The Companies Act 1985 (sections 370 and 370A) provides that two members personally present constitute a quorum, but allows the articles to lay down different requirements, except that, in the case of a private company having only one member, that one member constitutes the quorum, no matter what the articles say.

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Q13 What rules govern the first Annual General Meetings?

Under section 366 of the Companies Act, an AGM must be held, firstly, within 18 months of the company’s incorporation and then not more than 15 months should elapse between the date of the one AGM and that of the next.  If the company fails to hold an AGM within the prescribed time limits both it and the defaulting directors can be fined.  The Act is silent on any provisions on AGMs which may be in a company’s articles of association; it the requirements of section 366 cannot be overridden.

Private companies may, however, by elective resolution, dispense with the need to hold AGMs (Companies Act 1985, section 366A; an elective resolution requires the agreement of all the members entitled to attend and vote).

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Q14 What rules govern when and where I hold an Annual General Meetings?

The provisions for the timing of AGMs are dealt with under section 366 of the Companies Act 1985. In exercising their power to call a meeting, the directors must act in good faith (Cannon v Trask (1875) LR 20 Eq 669) which precludes calling the meeting for unsuitable dates or locations.  The meeting must be called for a reasonable time and what would be a reasonable time would depend on the circumstances.  The best practice, of course, is to hold the meeting on a working day during normal business hours.

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Q15 How can I call an Extraordinary General Meeting?

Many of the provisions regarding meetings will be found in the articles of association but section 369 of the Companies Act 1985 imposes certain minimum requirements as to the length of notice for calling a meeting; in the cases of an EGM it is 14 days notice in writing (there are now also provisions which allow for the notice to be by electronic communication/on the website).

By agreement of a majority in number of members having the right to attend and vote, being a majority holding not less than 95% in nominal value of shares giving the right to attend and vote, a valid meeting can be summoned by a lesser notice period (section 369 (3) and (4) and regulation 38 of table A).

Notice periods will vary depending on the type of resolution (section 378 of the Companies Act 1985) to put to the EGM.  For an extraordinary resolution there is no prescribed notice period, so at an EGM this will be 14 days.  A special resolution will require 21 days notice, however, section 378(3) allows for a lesser notice period (similar provisions to above paragraph).

There are certain requirements regarding substantial acquisitions in both the Takeover Code (responsibility of Takeover Panel) and the Listing Rules (responsibility of FSA), which may be relevant.

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Q16 Do I have to have Share Capital?

Private companies do not have a minimum share capital.

Public companies must have a minimum share capital of £50,000 (section 118 of the Companies Act 1985).

A company listing its shares on the London Stock Exchange must have a total market capitalisation of not less than £700,000, and would normally be expected to be much larger – see the London Stock Exchange Practical Guide to Listing, available at the LSE’s website.

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Q17 What rules govern shareholders nominees?

Shareholders may hold their shares directly and be named on the company’s share register or they may hold their shares through a nominee.  A nominee is an institution or person under whose name it has been agreed that an investment will be held, for example, shares may be held under the name of a broker or investment fund so that it is easier to settle transactions.  If this is the case, it is the nominee who will be entered onto the share register as the owner and be entitled to voting rights etc while the “real” or beneficial owner will receive dividends.

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Q18 Pre-emption Rights

Section 89(1) of the Act provides that a company proposing to allot equity securities shall not allot them to any person unless it has first offered, on the same or more favourable terms, to each person who holds shares, a proportion of those equity securities.

Under section 95 of the Act (Disapplication of pre-emption rights), companies may, in certain circumstances, resolve by special resolution that section 89(1) shall not apply to future allotments or to a specified allotment of shares.  However, the resolution may not cover a period of longer than five years unless renewed by a further special resolution.  Section 95 also states that a special resolution may not be proposed unless it has been recommended by the directors, and there is circulated to members entitled to notice of the meeting a written statement by the directors of their reasons for making the recommendation, the amount to be paid to the company in respect of the proposed issue and the directors’ justification of that amount.

In respect of private companies, under section 91 of the Act, the provisions of section 89(1) may be executed by provisions in the memorandum or articles of association of the company.

If you feel there has been a breach under of your pre-emption rights under section 89(1) of the Act, you may wish to take legal advice.

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Q19 Are there any restrictions on the nationality of Shareholders?

There are no restrictions in company law, although there may be provisions in a company’s articles which are of relevance.  It may be that there are also relevant restrictions operating in respect of those countries against which the Government has imposed sanctions.

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Q20 Shares (classes and rights)

The division of a company’s shares into classes and the rights attached to each class will normally be set out in the company’s memorandum or articles of association (generally the latter) but this is not compulsory, except as regards rights of redemption.  (if the classes and rights of shares are not set out in either the memorandum or articles then this information will be available in other of the company’s documents which will be registered at Companies House).

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Q21 What rules cover Dividends Payment?

Part VIII of the Companies Act 1985 contains provisions for the amount of a company’s profits available for distribution, e.g as dividend.  It should, however, be borne in mind that a company is not bound to distribute its profits among its members unless the Article of Association so provide and profits are frequently used for other purposes.

Under the Articles of Association of most companies it is the directors who normally recommend the amount of the dividend, which is subject to the approval of the company in general meeting.  The Articles usually provide that the dividend shall not exceed the amount recommended by the directors so that, while the shareholders cannot increase it, they can reduce the amount of the dividend.  It is, however, important to look at a company’s Memorandum and Articles of Association in order to establish the provisions, which it has adopted in relation to dividends.

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Q22 Do I have to have a Registered Office Address?

Every company must have a registered office; it is the ‘home’ of the company to which all official documents, notices and court papers have to be sent by law (section 287 of the Companies Act 1985).  The address must be a physical location, not just a post office box.  This is because people have the right to visit the office to inspect certain registers and documents, and to deliver documents by hand.

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Q23 How can I access Accounting records?

There is no automatic right under the Companies Act 1985 for shareholders to have access to a company’s accounting records although they should at all times be open to inspection by the company’s officers.  However, section 239(1) of the Act states that any member of a company and any holder of a company’s debentures is entitled to be furnished, on a demand and without any charge, with a copy of the company’s last annual accounts and directors’ report and c copy of the auditors report on those accounts.  It is an offence under section 239(3) of the Act if a demand under this section is not complied with within seven days.

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Q24 What rules cover Company Stationery?

From 1 January 2007, the Companies Act 1985 as amended requires the company's name[1] to appear legibly in:

(a)           all its business letters,

(b)           all its notices and other official publications,

(c)           on all its websites,

(d)           all bills of exchange, promissory notes, endorsements, cheques, orders for money or goods purporting to be signed by or on behalf of the company, and

(e)           all bills of parcels, invoices, receipts, letters of credit.

In addition, the company's business letters, order forms and websites have to include[2]fuller particulars, i.e.

  1. the company's place of registration and the number with which it is registered,

(b)           the address of its registered office,

(c)           in the case of an investment company[3], the fact that it is such a company, and

(d)           in the case of a limited company exempt from the obligation to use the word "limited" as part of its name[4], the fact that it is a limited company.

All these requirements apply whether the document is in hard copy or electronic or any other form.


[1]Section 349, Companies Act 1985.

[2]Section 351, Companies Act 1985.

[3]As defined in Section 266, Companies Act 1985.

[4]Either because it meets the requirements in Section 30(2) of the Companies Act 1985 or because it is an unregistered company to which Section 351 of the Companies Act 1985 applies by virtue of its Section 718 or because it is a community interest company which is not a public company (see section 351(1)(d) of the Companies Act 1985, as amended by the CAICE Act 2004).

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Q25 Trustee Law

Trustee law is the responsibility of the Ministry of Justice. 

If the company is also registered charity, you may contact the Charity Commission.

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Q26 Windup-up, strike-off and dissolution

More information can be found at the Insolvency Service website and the Companies House website

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Q27 How Can I obtain a copy of the 1985 Companies Act

The Department for Business, Enterprise and Regulatory Reform does not have copies of the Act.  The Act can be obtained from the following Office of public sector information

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Q28 Confidentiality Orders

Directors or Secretaries may apply for a confidentiality order if they believe that their residential address being on the public record would create a serious risk that they or those who live with them, would be subject to violence or intimidation.

For form 723B to apply for a Confidentiality order under The Companies (Particulars of Usual Residential Address) (Confidentiality Orders) Regulations 2002, please contact the confidentiality orders info line : +44 0845 3032 400

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What are the current rules relating to company records?

The Companies (Inspection and Copying of Registers, Indices and Documents) Regulations 1991 (SI 1991/1998) continue to apply until 1 October 2009. The fees for inspection and copying are in Schedule 2 of S.I.1991/1999. Schedule 2 has been amended by two recent sets of Regulations:

  •  The Companies (Fees for Inspection and Copying of Company Records) Regulations 2007 (SI 2007/2612) which came into force on 1 October 2007; and
  • The Companies (Fees for Inspection and Copying of Company Records) (No.2) Regulations 2007 (SI 2007/3535) which came into force on 6 April 2008.

These Regulations changed fee levels subject to transitional provisions.

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