Clause 104: Issue of certificate of incorporation on re-registration

227.     This clause replaces section 50 of the 1985 Act. It does not make any substantive changes to that section and, as now, where the registrar is satisfied that a company is entitled to be re-registered as an unlimited company, he will issue a new certificate of incorporation (which must state that it is being issued on re-registration of the company). On the issue of a new certificate of incorporation under this clause, the company becomes an unlimited company and the change to its name and any amendments that were required to be made to the articles take effect.

228.     As now, the certificate of incorporation on re-registration is conclusive evidence that the company is now an unlimited company and that the requirements of the Bill as regards re-registration have been met.

Unlimited private company becoming limited

Clause 105: Re-registration of unlimited company as limited

229.     This clause replaces section 51(1)-(3) and (6) of the 1985 Act. It does not make any substantive changes to those provisions and, as now, permits an unlimited company to re-register as a private limited company if certain conditions are met (see subsection (2)). As now, a re-registration from unlimited to limited requires a special resolution of the company's members, (which must specify whether the company is to be limited by shares or limited by guarantee). The company must also make such changes to its name and articles as are required to reflect the change in the company's status. As is presently the case under section 51(6), this clause does not permit the re-registration of an unlimited company as a public company (this clause provides for the re-registration of an unlimited company as a private limited company).

Clause 106: Application and accompanying documents

230.     This clause replaces section 51(3), (4) and (5) of the 1985 Act. It prescribes the contents of the application for re-registration and the documents/information that must accompany this application. Paragraph (b) of subsection (2) of this clause provides that, in the case of a company that is to be limited by shares which has not previously had a share capital, that the application must be accompanied by a "statement of initial shareholdings" (see note on clause 10) and a "statement of capital" (see note on clause 11). Where the company is to be limited by guarantee, paragraph (c) of that subsection requires the application for re-registration to be accompanied by a "statement of guarantee" (see note on clause 12). There is a pointer to clause 111, which provides for the form of these statements.

231.     The requirement for these statements is new. It reflects the fact that in future information about a company's share capital or guarantee will not be set out in the memorandum (see note on clause 8).

Clause 107: Issue of certificate of incorporation on re-registration

232.     This clause replaces section 52 of the 1985 Act. It does not make any substantive changes to that section and, as now, provides that, where the registrar is satisfied that a company is entitled to be re-registered as a private company, he will issue a new certificate of incorporation (which must state that it is being issued on the re-registration of the company). On the issue of a new certificate of incorporation under this clause, the company becomes a private limited company and the change to its name and any amendments that were required to be made to the articles take effect.

233.     As now, the certificate of incorporation on re-registration issued under clause 107 is conclusive evidence that the company is now a private limited company and that the requirements of the Bill as regards re-registration have been met.

Public company becoming private and unlimited

Clause 108: Re-registration of public company as private and unlimited

234.     This clause is a new provision, which, as recommended by the CLR (Final Report, paragraph 11.6), enables a public company to re-register as a private unlimited company with a share capital without first having to re-register as a private limited company. The conditions specified in subsection (2) must be met and all of the members must give their assent to the company being so re-registered. In the case of a deceased member, assent may be given by the personal representative of the deceased member's estate. Where a member is bankrupt, assent may be given by his trustee in bankruptcy (to the exclusion of the member in question).

235.     A public company may not re-register as an unlimited private company under this clause if it has previously been re-registered as limited or as unlimited.

Clause 109: Application and accompanying documents

236.     This clause is a new provision. It prescribes the contents of the application for re-registration from public to unlimited private and the documents/information that must accompany this application. There is a requirement at subsection (3) for a statement of compliance (see note on clause 14). In this case the statement of compliance must contain a statement made by the directors confirming that:

• the persons by whom or on whose behalf the form of assent is subscribed constitute the whole membership of the company; and

• if any of the members have not subscribed that form themselves, that the directors have taken all reasonable steps to satisfy themselves that each person who subscribed it on behalf of a member was lawfully empowered to do so.

237.     This mirrors the requirements of the statement of compliance in clause 103 (private limited company becoming unlimited: application and accompanying documents).

Clause 110: Issue of certificate of incorporation on re-registration

238.     Where the registrar is satisfied that a public company is entitled to be re-registered as an unlimited private company, she will issue a new certificate of incorporation (which must state that it is being issued on the re-registration of the company). On the issue of a new certificate of incorporation under this clause, the company becomes a private unlimited company and the change to its name and any amendments that were made to the articles take effect.

239.     The certificate of incorporation on re-registration is conclusive evidence that the company is now a private unlimited company and that the requirements of the Bill as regards re-registration have been met.

Supplementary

Clause 111: Form of statements required

240.     This clause makes provision in respect of the form of statements required by clause 103(2)(b) (the statement of initial shareholdings and share capital where a company is re-registering from limited to unlimited) and clause 106(2)(b) and (c) (the statements of initial shareholdings, capital and guarantee where the company is re-registering from unlimited to limited).

PART 8: MEMBERS OF A COMPANY

241.     The provisions of this Part replace sections 22 and 23 and, with the exception of section 362, Chapter 2 of Part 11 of the 1985 Act.

CHAPTER 1: THE MEMBERS OF A COMPANY

Clause 112: The members of a company

242.     This clause replaces section 22 of the 1985 Act. There are additional words to make it clear that the subscribers to the memorandum become members on registration of the company, even if the company fails to enter their names in the register of members.

CHAPTER 2: REGISTER OF MEMBERS

General

Clause 113: Register of members

243.     This clause replaces section 352(1)-(5) of the 1985 Act. The only new provision is subsection (5) which makes it clear that for the purposes of this Chapter, joint holders of a share fall to be treated as a single member, although all their names must be stated in the register.

Clause 114: Register to be kept available for inspection

244.     This clause replaces section 353 of the 1985 Act. Currently, the register of members is required to be kept at the registered office of the company, except that if the company has appointed a third party to maintain or update the register, it may be kept at the office where that work is done, subject to that office being in the jurisdiction where the company is registered.

245.     Under the Bill the requirement (here and in relation to other registers) is to keep the register available for inspection at a specified location. It is immaterial where the work of compiling or updating the register is carried out.

Clause 115: Index of members

246.     This clause replaces section 354 of the 1985 Act. There is no change in the obligation of a company with more than 50 members to maintain an index of the names of the members (which the company is obliged to do unless the register itself is kept in such a form as to constitute an index).

Clause 116: Rights to inspect and request copies

247.     This clause replaces section 356 of the 1985 Act. It retains the existing rights of inspection and to be provided with copies of the register of members and its index. Clause 744 provides power for the Secretary of State to make regulations about the inspection of records and provision of copies and to set fees.

248.     Subsections (3) to (5) are new. The CLR recommended that information in a company's register of members should be made available only for certain specified purposes (Final Report, paragraph 11.44). The clause does not attempt to define what are proper purposes but provides a procedure by which the company can refer the matter to the court.

249.     Subsection (3) replaces the 10-day deadline for compliance with a 5-day period within which the company must either comply with the request or apply to the court for relief from the obligation. If the company opts for the latter, then subsections (4) and (5) apply. Under subsection (4), if the court is satisfied that the access to the register of members is not sought for a proper purpose, it will relieve the company of the obligation to meet the request and may require that the person who made the request pays the company's costs. If the court does not makes such an order or the proceedings are discontinued, then, under subsection (5), the company must immediately comply with the request.

250.     Subsections (6) and (7) retain the existing sanctions for failure to comply with a request. They do not apply if the court has directed that the company need not comply with the request.

Clause 117: Information as to state of register and index

251.      This is a new provision. It implements the CLR recommendation that companies be required to advise anyone exercising their right of inspection or right to demand a copy of the register of index whether the information is up-to-date and, if not, the date to which it has been made up (Final Report, paragraph 11.43). Failure to provide this information renders the company and any officer in default liable to a fine.

Clause 118: Removal of entries relating to former members

252.     This clause replaces section 352(6) of the 1985 Act. Based on a recommendation by the CLR (Final Report, paragraph 11.40), it reduces the period for which the entry of a past member must be kept from 20 years to 10 years.

Special cases

Clause 119: Share warrants

253.     This clause replaces section 355 of the 1985 Act and implements the CLR recommendation (Completing the Structure, paragraph 5.41) in making clear that shares need not first be issued in registered form, but can be issued directly in warrant to bearer form.

Clause 120: Single member companies

254.     This clause replaces section 352A of the 1985 Act, which implements the Twelfth Company Law Directive (89/667/EEC) on single member private limited liability companies. This clause requires a statement to be entered in a company's register of members that it has only one member if that is the case on incorporation or at a later date - if the latter, the date on which it so became must also be entered. It also requires a statement that the company has ceased to have only one member together with the date of the increase.

Clause 121: Company holding its own shares as treasury shares

255.      This clause replaces section 352(3A) as regards the entries required to be made in the register of members where a company holds treasury shares. The effect of that provision is unchanged.

Supplementary

Clause 122: Power of court to rectify register

256.     This clause replaces section 359 of the 1985 Act. There is no change of substance.

Clause 123: Trusts not to be entered on register

257.      This clause replaces section 360 of the 1985 Act. The only change is in consequence of its extension to Northern Ireland.

Clause 124: Register to be evidence

258.     This clause replaces section 361 of the 1985 Act. Its effect is unchanged.

Clause 125: Time limit for claims arising from entry in register

259.     This clause replaces section 352(7) of the 1985 Act. Based on a recommendation by the CLR (Final Report, paragraph 11.40), it reduces the time limit for claims relating to entries in the register from 20 years to 10 years.

Clause 126: Overseas branch registers

260.     This clause provides that nothing in this Chapter affects the power of a company to keep an overseas register under section 362 of and Schedule 14 to the 1985 Act. Those provisions remain in force.

261.     Subsection (2) provides power to make provision by regulations relating to these registers, subject to negative resolution procedure.

CHAPTER 3: PROHIBITION ON SUBSIDIARY BEING MEMBER OF ITS HOLDING COMPANY

262.     This Chapter is a restatement of the provisions of section 23 of the 1985 Act and Part 1 of Schedule 2 as it applies for the purposes of that section. There is no change of substance.

Clauses 127 to 135: Prohibition on subsidiary being member of its holding company

263.     Clause 127 prohibits a company from holding shares of its own holding company. The prohibition applies to all bodies corporate. Clause 128 is a saving for certain shares acquired before the date the prohibition originally came into force.

264.     Clauses 129 to 133 provide for exceptions from the prohibition where the subsidiary is acting as personal representative or trustee, or as a dealer in securities.

265.     Clauses 134 and 135 contain supplementary provisions.

PART 9: EXERCISE OF MEMBERS' RIGHTS

266.     The CLR considered the rights of persons other than registered shareholders in Chapter 4 of "Developing the Framework" and Chapter 5 of "Completing the Structure", presenting their recommendations in Chapter 7 of the "Final Report." The new provisions in this Part have been developed with these recommendations in mind and are designed to make it easier for investors to exercise their governance rights fully and responsibly. Nowadays when investors, whether major institutional investors or retail investors, buy shares in a listed company they are increasingly likely to hold their shares through an intermediary or a chain of intermediaries. This means that it is an intermediary's name that appears on the company's register of members. As a result investors typically have to rely on contractual arrangements with the intermediaries both to obtain information from the company and also to give any instructions they wish about how shares should be voted.

267.     Some companies have used the flexibilities in our current law to amend their articles so as to extend certain rights of members to investors holding through certain intermediaries. However, there may be legal impediments. The provisions of this Part are intended to ensure that nothing in the Companies Acts hinders companies from making arrangements of this kind.

268.     The enhanced proxy rights provided in Chapter 3 of Part 13 will enable investors, acting as proxies to a registered member, to exercise all the meeting participation rights that would otherwise rest with the registered member alone. The provisions of this Part go a step further by allowing companies to enfranchise persons identified by the registered member to enjoy and exercise all or certain governance rights.

Clause 136: Enjoyment or exercise of members' rights

269.     This clause provides that where companies make provision, through their articles, to extend rights to those holding shares through intermediaries, the provision is legally effective in relation to various statutory requirements.

270.     Subsection (1) allows members to amend the company's articles to enable a member to identify another person or persons as entitled to enjoy or exercise all or any specified rights of the member. The articles may specify that this entitlement can apply only to certain rights or to all rights, except the right to transfer the shares. As subsection (4)(b) makes clear, the right to transfer shares must remain, as under the 1985 Act, with the member whose name is on the register.

271.     Subsection (2) provides that where a company makes relevant provision in its articles, all relevant references in the Companies Acts to "member" should be read as if the reference to member was a reference to those identified by the member. Subsection (3) makes clear that this can apply in particular to provisions about resolutions and meetings and to receipt of information such as the annual accounts. This list is not exhaustive and the articles may specify additional rights.

272.     Subsection (4)(a) makes it clear that non-members do not have direct enforceable rights against the company. They should enforce their rights through the member whose name is on the register and who thus has the right to enforce the articles.

273.     The clause allows companies flexibility to make different arrangements in different cases depending on the number of investors and exactly which rights are being extended and so on. The only thing that is prescribed is that the communications must come from the member whose name is on the register or someone authorised directly or indirectly by the member.

Clause 137: Power to require provision to be made in company's articles

274.     This clause derives in part from the CLR recommendation (Final Report, paragraph 7.4) for a reserve power to require companies to extend certain rights to investors whose names are not on the register.

275.     Subsection (1) confers on the Secretary of State a power to make regulations to compel companies to provide information to those nominated by the registered member. Companies will not need to make provision in their articles to comply with any regulations made under this power.

276.     Subsection (3)(c) allows the regulations to specify how companies are to send and supply the information. The intention is that electronic delivery should avoid most of the costs of paper, be much quicker and more practical particularly when forwarding information through a chain of intermediaries. Subsection (4) thus limits the scope of the power by ensuring that the regulations cannot require companies to send and supply information in hard copy unless the Secretary of State is satisfied that the costs would not be disproportionate to the benefits arising for persons nominated by members.

PART 10: COMPANY DIRECTORS

277.     This Part replaces Part 10 of the 1985 Act (enforcement of fair dealing by directors), the provisions relating to directors in Part 9 of that Act and the provisions relating to confidentiality orders in Part 25 of that Act. It also introduces a statutory statement of directors' general duties to the company.

Who is a director?

278.     Clause 229 defines a director as including any person occupying the position of director, by whatever name called. This is the same as the definition contained in section 741(1) of the 1985 Act. The Bill does not attempt a more detailed definition of a director because it is important to ensure that the term is applied to anybody who exercises real power within the company, particularly in relation to decision taking. The term "director" therefore includes:

• an executive director who has been properly appointed by the company;

• a non-executive director who has been properly appointed by the company;

• a de facto director (that is, a person who has assumed the status and functions of a company director even though he has not been properly appointed).

279.     A "shadow director" is defined by clause 230 as "a person in accordance with whose directions or instructions the directors of the company are accustomed to act. A person is not to be regarded as a shadow director by reason only that the directors act on advice given by him in a professional capacity". This is the same as the definition contained in section 741(2) of the 1985 Act.

Powers of directors

280.     This Part of the Bill does not generally directly give powers to the directors, but, under the draft model articles of association for private companies limited by shares, the directors' functions are:

• to manage the company's business; and

• to exercise all the powers of the company for any purpose connected with managing the company's business.

CHAPTER 1: APPOINTMENT AND REMOVAL OF DIRECTORS

Requirement to have directors

Clause 138: Companies required to have directors

281.     This clause replaces section 282 of the 1985 Act. It distinguishes between private and public companies. It retains the requirement for a private company to have at least one director and requires all public companies to have at least two. There will no longer be an exception for public companies registered before 1st November 1929 (or before 1st January 1933 in Northern Ireland).

Clause 139: Companies required to have at least one director who is a natural person

282.     This clause is a new provision. It introduces a requirement that every company have at least one director who is a natural person, ie an individual. Subject to this requirement being satisfied, any legal person, including a company, can be a director but one company cannot be the sole director of another company.

283.      Subsection (2) provides that the only director may be a corporation sole (for example, the Archbishop of Canterbury) or someone appointed on the basis of some other appointment that they hold.

Clause 140: Direction requiring company to make appointment

284.     This clause is a new provision, enabling enforcement of the existing requirement for a private company to have at least one director and a public company to have at least two directors and the new requirement for every company to have at least one director who is an individual. Where it appears to the Secretary of State that one of these requirements is not met, the Secretary of State will be able to direct the company to comply by issuing a notice. It will be an offence not to comply.

Appointment

Clause 141: Minimum age for appointment as director

285.     This clause is a new provision. It introduces a minimum age of 16 for a natural person to be a director. Subsection (2) provides that prohibition will not prevent the appointment of a younger person provided it is not to take effect until that person is 16. Subsection (3) provides that the age limit applies even if the director's appointment is a consequence of some other appointment. Subsection (5) provides that this prohibition on under age directors does not provide protection from criminal prosecution or civil liability if he or she were to act as director, i.e. as a de facto director, or if the company's directors usually act on that young person's instructions.

Clause 142: Power to provide for exceptions from minimum age requirement

286.     This Clause provides for an exception from the prohibition in clause 141 on anyone under 16 being appointed a director of a company. It provides a power for the Secretary of State to make regulations specifying circumstances in which a younger person may be a director. The regulations may differ for different parts of the UK.

Clause 143: Existing under-age directors

287.     This clause is a transitional provision. Subsection (2) provides that where a person under 16 has been appointed as director (or holds the office of director by virtue of another office or is a corporation sole) prior to the prohibition on under age directors coming into force, that person will cease to be a director when the prohibition in clause 141 comes into force. Subsection (3) makes it the company's responsibility to amend its register of directors accordingly but the company is not required to notify the registrar of the change. Subsection (4) gives the registrar power to amend the register without a notification by the company of the director's removal but rather on the basis of information already held (i.e. the date of birth as provided when the appointment was notified).