|Company Law Reform Bill [HL] - continued||House of Commons|
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Clause 35: Notice to registrar where company's constitution altered by enactment
110. The provisions of a company's constitution may be altered by legislation, rather than by a resolution or agreement of the company's members. Such legislation will either be of general relevance to all companies (for example, a new Companies Act provision that provisions of a certain type in any company's articles are void), or to all companies of a particular type (for example, new commonhold legislation changing the provisions prescribed for inclusion in the articles of all commonhold associations) or it will be relevant only to a particular company (for example, a private Act of Parliament amending the articles of a specific company established by an earlier Act).
111. In keeping with the principles underlying clause 26 (Registrar to be sent copy of amended articles), it is important that those searching the register of companies should be able to be made aware of the changes to companies' articles which legislation may effect. However, there is a balance to be struck between maintaining transparency on the one hand and inundating the registrar and searchers with mountains of paper which will be of little practical use to them (and whose contents are generally available in any event) on the other. The clause therefore does not require companies to send copies of most public general Acts which alter their articles (such as Companies Acts or new commonhold legislation) to the registrar, but does require "special enactments" (as defined in subsection (4)) to be sent to the registrar by companies whose articles are altered by the enactment in question.
112. Where a special enactment amends a company's articles, or where such an enactment amends a resolution or agreement affecting the company's constitution, the company is obliged to send a copy of the articles, or the resolution or agreement in question, as altered, to the registrar.
113. The procedural rules for sending such legislation to the registrar, and the penalties for non-compliance with them, are as for clause 26 (see note on that clause).
Clause 36: Notice to registrar where company's constitution altered by order
114. This is a new provision which provides a mechanism for registering alterations which are made to a company's constitution by an order of the court or other authority (for example, the Charity Commission). It obliges companies to give notice of such alterations to the registrar, and to supply a copy of the articles, or the resolution or agreement in question, as altered to the registrar.
Clause 37: Right to participate in profits otherwise than as member void
115. This clause replaces section 15 of the 1985 Act. It provides that if a company does not have a share capital (for example, if it is a company limited by guarantee without a share capital), it cannot, by means of a provision in its articles or a resolution of its members, confer on any person a right to participate in its divisible profits otherwise than as a member. As under the 1985 Act, there is no statutory restriction on the members of such companies participating in their profits, unless they have sought exemption from the use of the word "limited" in their names.
Clause 38: Application to single member companies of enactments and rules of law
116. Under clause 7 (Method of forming company) it will be possible for a single person to form any type of company. This clause provides that in future any enactment or rule of law that is applicable to companies formed by two or more persons (or having two or more members) applies (with any necessary modifications) to companies formed with one member (or having only one person as a member). This is already the case in respect of private limited companies: see the Companies (Single Member Private Limited Companies) Regulations 1992 (SI 1992/1699).
117. This Part of the Bill replaces various provisions in Chapter 3 of Part 1 of the 1985 Act. Clauses 39 and 40 replace sections 35, 35A and 35B of that Act, which contain provisions derived from the First Company Law Directive (68/151/EEC).
Capacity of company and power of directors to bind it
Clause 39: A company's capacity
118. This clause provides that the validity of a company's acts is not to be questioned on the ground of lack of capacity because of anything in a company's constitution. It replaces the present section 35(1) of the 1985 Act, which made similar provision for restrictions of capacity contained in the memorandum.
119. The clause does not contain provision corresponding to section 35(2) and (3). It is considered that the combination of the fact that under the Bill a company may have unrestricted objects (and where it has restricted objects the directors' powers are correspondingly restricted), and the fact that a specific duty on directors to abide by the company's constitution is provided for in clause 157 (Duty to act within powers) makes these provisions unnecessary.
120. Subsection (2) indicates that the clause, like section 35 of the 1985 Act, is modified in its application to charities.
Clause 40: Power of directors to bind the company
121. This clause provides safeguards for a person dealing with a company in good faith. The clause replaces section 35A of the 1985 Act. The power of the directors to bind the company, or authorise others to do so, is deemed not to be constrained by the company's constitution. This means that a third party dealing with a company in good faith need not concern itself about whether a company is acting within its constitution.
122. Subsection (2)(b)(i) of the clause replaces part of section 35B of the 1985 Act: an external party is not bound to enquire whether there are any limitations on the power of the directors.
Clause 41: Constitutional limitations: transactions involving directors or their associates
123. This clause retains the substance of section 322A of the 1985. It applies to a transaction if, or to the extent that, its validity depends on clause 40 (Power of the directors to bind the company) and provides that where the party to a transaction with a company is an "insider" (for example, a director of the company or person connected to such a director - see subsection (2)(b)(i) and (ii)), then the protection afforded by that clause will not apply (that is, the transaction will be voidable at the instance of the company).
124. Irrespective of whether the transaction is avoided, the "insider" and any director who authorised the transaction is liable to account to the company for any gain he has made as a result of the transaction and to indemnify the company for any loss or damage that the company has incurred (see subsection (3)). However, where the "insider" is not a director of the company, it may be possible for him to avoid liability if he can show that at the time he entered into the transaction with the company he was unaware that the directors were exceeding their powers (see subsection (5)).
125. As now, under subsection (4), a transaction will cease to be voidable in certain circumstances, for example, if restitution of any money or asset that has been lost as a result of the transaction is no longer possible.
Clause 42: Constitutional limitations: companies that are charities
126. This clause reproduces the substance of section 65 of the Charities Act 1993. It is a qualification of the rules in clause 39 (A company's capacity) and clause 40 (Power of the directors to bind the company) and replaces sections 35(4) and 35A(6) of the 1985 Act.
127. It provides that the protection afforded to an external party by clauses 39 and 40 will not apply where the company in question is a charity, unless:
128. Where a company that is a charity purports to transfer or grant an interest in its property, nothing in this clause affects the rights of a person who subsequently acquires that property for full consideration, providing that he did not have actual notice of the circumstances affecting the validity of the act done by the company (see subsection (2)).
129. Where a company is registered as a charity in England and Wales and Northern Ireland, and it seeks to affirm an act which was beyond the powers of the directors (see clause 41: Constitutional limitations: transactions involving directors or their associates), such affirmation may only be given if the company has received the prior written consent of the Charity Commissioners in England and Wales, or the Department for Social Development in Northern Ireland (see subsection (4)).
130. Corresponding provisions for charities that are registered in Scotland can be found in Section 112 of the Companies Act 1989 (see subsection (5)).
Formalities of doing business under the law of England and Wales or Northern Ireland
Clause 43: Company contracts
131. This clause re-enacts the provisions of section 36 of the 1985 Act. It provides that a contract may be entered into by a company under the law of England and Wales and Northern Ireland, by the company itself by writing under its common seal or on behalf of the company by a person acting under its authority, express or implied.
Clause 44: Execution of documents
132. This clause replaces section 36A of the 1985 Act. It makes separate provision for private companies and public companies as the former are no longer required to have a company secretary (see clause 253). Subsection (2) provides that for private companies, a document may be executed by a company either by affixing its common seal or by the signature of two directors or by a single director in the presence of a witness. Subsection (3) provides a further option for public companies: signature by a director and a secretary. Subsections (4) to (7) replace section 36A(4A) to (7) of the 1985 Act without change in their effect. These provisions were inserted by the Regulatory Reform (Execution of Deeds and Documents) Order 2005 (SI 2005/1906), which also amended section 36A(5) and (6).
Clause 45: Common seal
133. This clause re-enacts the provisions of sections 36A(3) and 350 of the 1985 Act. It permits but does not require a company to have a common seal. If a company has a common seal, it requires the seal to include the company's name: failure to do so is an offence.
Clause 46: Execution of deeds
134. This clause re-enacts section 36AA, inserted into the 1985 Act by the Regulatory Reform (Execution of Deeds and Documents) Order 2005 (SI 2005/1906).
Clause 47: Execution of deeds and other documents by attorney
135. This clause replaces section 38 of the 1985 Act. It provides that a company may appoint, under the law of England and Wales and Northern Ireland, attorneys to execute deeds or other documents on its behalf, and that documents executed in this manner, whether in the UK or abroad, have effect as if executed by the company.
Clause 48: Authentication of documents
136. This clause replaces section 41 of the 1985 Act, and is extended to take account of Northern Ireland. It no longer makes an express reference to a company secretary, but this does not prevent a company which has a company secretary from authorising him to act.
Formalities of doing business under the law of Scotland
Clause 49: Execution of documents by companies
137. This clause replaces clause 36B of the 1985 Act. The only change is the addition of subsection (1) which makes clear that this clause forms part of the law of Scotland only.
Clause 50: Official seal for use abroad
138. This clause re-enacts section 39 of the 1985 Act. It sets out the circumstances and manner in which a company may use its common seal outside the UK.
Clause 51: Official seal for share certificates etc
139. This clause re-enacts section 40 of the 1985 Act. It enables a company that has a common seal to have an official seal for sealing securities issued by the company and for sealing documents creating or evidencing securities so issued.
Clause 52: Pre-incorporation contracts, deeds and obligations
140. This clause re-enacts section 36C of the 1985 Act. A company is not bound by a contract purportedly made on its behalf before it came into existence unless the obligations are novated, i.e. a new contract must come into existence after incorporation on the same terms as the old one. Novation may be express or implied.
Clause 53: Bills of exchange and promissory notes
141. This clause re-enacts section 37 of the 1985 Act. A bill of exchange is an unconditional order in writing, addressed by one person to another, signed by the person giving it, requiring the person to whom it is addressed to pay on demand or at a fixed or determinable future time a sum certain in money to or to the order of a specified person, or to its bearer. A promissory note is an unconditional promise in writing made by one person to another, signed by the maker, engaging to pay, on demand or at a fixed or determinable future time, a sum certain in money to, or to the order of, a specified person or to its bearer. Where someone acting under a company's authority makes, accepts, or endorses such an instrument in the name of the company, or on its behalf, this clause treats this as if these actions had been done by the company.
142. This Part applies to the name under which a company is registered, sometimes called the "corporate name". This Part regulates the choice of name. The rules are primarily intended to ensure that third parties are not misled. There are no property rights in companies' registered names as such. While there is no requirement for a company to use its registered name in the course of business, this Part also requires a company to disclose its name in specified circumstances.
143. Clauses 70 to 75 provide for the appointment of adjudicators in cases where there is dispute over the registering of a company name. Clause 71 safeguards the independence of the adjudicators and clause 74 provides a right of appeal to the court.
Clause 54: Prohibited names
144. This clause replaces section 26(1)(d) and (e) of the 1985 Act. It retains the existing prohibition of companies registering names that cannot be used without commission of an offence and of those that are offensive.
Sensitive words and expressions
Clause 55: Names suggesting connection with government or public authority
145. This clause replaces section 26(2)(a) of the 1985 Act. It prevents a name being registered without the Secretary of State's approval if it suggests a connection with Her Majesty's Government, a local authority or - which represents a change from the 1985 Act - any part of the Scottish administration, or Her Majesty's Government in Northern Ireland. A new power allows similar protection to be extended to other public authorities.
Clause 56: Other sensitive words or expressions
146. This clause replaces section 26(2)(b) and 29(1)(a) of the 1985 Act.
147. Subsection (1) requires prior approval for the adoption of a name that includes words or expressions specified in regulations. Subsection (2) provides for the procedure to be used for making the regulations. The words and expressions protected by the current Regulations (the Company and Business Names Regulations 1981) include British, English, Scottish and Welsh; chamber of commerce, charity, Her Majesty, midwife, police, and university.
Clause 57: Duty to seek comment of government department or other specified body
148. This clause replaces section 29(1)(b), (2), (3) and (4) of the 1985 Act. It provides power for the Secretary of State to specify whose view must be sought when seeking approval for a name. For example, under the present Regulations, the approval of the General Dental Council is required for the use of either "dental" or "dentistry". The new regulations would be able to replicate this. They could also require the approval of, say, the House Authorities for names suggesting a connection with Parliament.
Permitted characters etc
Clause 58: Permitted characters etc
149. This clause is a new provision. It provides power for regulations to specify what letters, symbols, etc may be used in a company's registered name; the
regulations may also specify a permitted format for a name (for example, to prevent the use of superscript or subscript).
Required indications for limited companies
Clause 59: Public limited companies
150. This clause replaces section 25(1) of the 1985 Act (and also section 27(4) (b) and (d) in its application to section 25(2)). It brings together in a single provision all the alternative statutory indicators of legal status that must be used by a public company as part of its registered name, i.e. "public limited company" or the Welsh equivalent or the specified abbreviations. This clause does not apply to community interest companies.
Clause 60: Private limited companies
151. This clause replaces section 25(2) of the 1985 Act (and also section 27(4)(a) and (c) in their application to section 25(2)). It brings together in a single provision all the alternative statutory indicators of legal status that must be used by a private company as part of its registered name, i.e. "limited" or the Welsh equivalent or the specified abbreviations. Certain companies are exempt (see clause 61). This clause does not apply to community interest companies.
Clause 61: Exemption from requirement as to use of "limited"
Clause 62: Continuation of existing exemption: companies limited by shares
Clause 63: Continuation of existing exemption: companies limited by guarantee
152. These clauses replace section 30 of the 1985 Act. Section 30 exempts certain companies from the requirement for their names to conclude with "limited". Exempt companies are also exempt from some of the requirements regarding publication of their name but they still have to disclose their limited status in correspondence. Those currently exempt are those with a licence granted under section 19 of the 1948 Act and those who have delivered a statutory declaration to the Registrar that the company complies with the requirements for the exemption. These requirements are, in effect, that the company is non-profit-making and its objects are the promotion of commerce, art, science, education, religion, charity or any profession.
153. Clause 61 restricts the exemption to companies already exempt and, unlike the existing provision, to charities and to other companies exempted by regulations. So long as they continue to meet the conditions, those companies already exempt will continue to be exempt unless and until they change their registered name.
154. Clauses 62 and 63, which replace section 30(2) and (3), specify the conditions that must be met for a company currently exempt in order to continue to qualify for the exemption: its objects must continue to satisfy the criterion for their exemption and its articles must both preclude distributions of dividends to its members and also, in the event of it being wound up, require its assets to be passed to a body with similar objects. For companies limited by shares benefiting from an exemption under the Companies Act 1948 (or its Northern Irish equivalent), there is a new requirement that the articles prevent a distribution of capital. This is linked to the change in clause 64(4) (see below).
Clause 64: Exempt company: restriction on alteration of articles
155. This clause replaces sections 31(1) and (5). It prohibits a company benefiting from an exemption under the 1985 Act or the 1948 Act (or their Northern Irish equivalents) from changing its articles in such a way that it no longer meets the requirements for the exemption. It is an offence to change the company's articles in such a way. Many companies with an exemption under the 1948 Act (or its Northern Irish equivalent) were made to include a provision in their memorandum preventing an amendment to their memorandum or articles without the consent of the then Board of Trade (there were a number of variations on this theme). Subsections (4) and (5) make provision to remove this administrative burden.
Clause 65: Power to direct change of name in case of company ceasing to be entitled to exemption
156. This clause replaces section 31(2)-(4) and (6). It gives the Secretary of State power to withdraw a private company's exemption from the requirement for its name to conclude with "limited" if the company no longer meets the criteria that applied when it was granted the exemption.
Inappropriate use of indications of company type or legal form
Clause 66: Inappropriate use of indications of company type or legal form
157. This clause replaces section 26(1)(a), (b), (bb) and (bbb) of the 1985 Act. These paragraphs restrict the use of various words, expressions and abbreviations that are indicators of legal status for various types of commercial entity, e.g. p.l.c., community interest company, open-ended investment company, etc. Some of the restrictions apply to the use of the particular indicator at the end of a company's name; some anywhere other than the end of the name; and some anywhere in a company's name.
158. This clause provides power to make regulations prohibiting the inclusion in a company's name of specified words, expressions and abbreviations. The only words etc that can be specified in the regulations are those associated with a particular type of company or form or organisation or those confusingly similar to such words and expressions. It will also provide power to require or prohibit the statutory indicators of legal status being combined with specified other words.
Similarity to other name on registrar's index
Clause 67: Name not to be the same as another in the index
159. This clause replaces section 26(1)(c) and (3).
160. Subsection (1) retains the present prohibition, in section 26(1)(c), on a company adopting a name that is already on the registrar's index of company names - which includes not only the names of Companies Act companies but various other business entities (see clause 707). Subsections (2) and (3) provide power to make Regulations to replace the detailed rules presently contained in section 26(3) of the 1985 Act as to:
when comparing a proposed and an existing name. At present only "and" and "&" are taken as the same. The clause would provide power also to treat as the same:
161. The prohibition of names that, under these rules, are the same as an existing name will not be discretionary. But in future, it will be possible for there to be exceptions: subsection (4) provides that the regulations may specify that the disregard or treatment as the same apply only in specified circumstances that pertain at the time of registration.
Clause 68: Power to direct change of name in case of similarity to existing name
162. This clause replaces section 28(2) of the 1985 Act which provides power for the Secretary of State to direct a company to change its newly adopted name if the name is the same as or too like a name already on the registrar's index of company names (or one which should have been there). The objective is to prevent the public being confused by the simultaneous appearance on the register of two very similar names when the similarity is such that the later name was not caught by the non-discretionary prohibition of adopting a name effectively the "same as" an existing name (see clause 67).
163. The clause covers two circumstances. First, any delay in the entry on the index of company names of new names of entities that are not UK companies. Companies House enter all names immediately but there may be delays outside their control. If the name had already been taken by the other entity before the company adopted it then the registrar will direct the company to change its name. Second, the visual difference between the new name and an existing name being so small that third parties are likely to be confused by the simultaneous appearance of both names on the index of company names.
164. Subsections (2) and (3) provide power to make regulations, corresponding to that provided by clause 67, to replace the detailed rules presently contained in section 26(3) of the 1985 Act as to:
when comparing a proposed and an existing name. As in clause 67, subsection (4) provides for a power to make regulations permitting names that would otherwise be regarded as "too like" in certain circumstances or where consent is given.
|© Parliamentary copyright 2006||Prepared: 26 May 2006|