Remove Red Tape

The workings of companies and partnerships

These regulations are about the internal workings of companies and partnerships, for example model articles and shares/share capital. The regulations also set a framework for other aspects of business such as the operation of overseas companies in the UK.

You can find the regulations that relate to the workings of companies and partnerships below to the left.

Tell us what you think should happen to these regulations and why, being specific where possible:

• Should we scrap them altogether?
• Could their purpose be achieved in a non-regulatory way (eg through a voluntary code?) How?
• Could they be reformed, simplified or merged? How?
• Can we reduce their bureaucracy through better implementation? How?
• Can we make their enforcement less burdensome? How?
• Should they be left as they are?

24 comments on “The workings of companies and partnerships”

1. Jonathan Dolbear on March 4, 2013 at 11:35 am said:

   Non-listed plc’s should be treated in the same way as Private Companies. The Companies Act 2006 was writenfrom a ‘think small first’ perspective, however any provisions therein that apply to plc’s are clearly with Listed plc’s in mind. This leaves unlisted plc’s in a somewhat inbetween position. All plc’s, listed and unlisted, should continue to have a minimum capital requirement (currently £50k), but the requirements for unlisted plc’s to have a minimum of two shareholders, to not be able to use the solvency statement procedure to reduce capital, etc is just ab unnecessary administrative burden. Also, the Companies Act 2006 already differentiates listed companies to some degree whereby certain requirements apply to companies with share listed – the AR01 annual return for example or the requirements relating to treasury shares. So, I suggest that the Companies Act 2006 be amended to differentiate between Listed and Non-Listed companies, but with the minimum capital requirement applying to all plc’s. Remember this exercise is about suggestions to reduce unnecessary red tape.Comment Tags: Unlisted public limited company plc

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2. Bernadette Barber on August 29, 2012 at 1:01 pm said:

   S.370 of the Companies Act 1985 used to permit a company’s articles to prescribe how notice of a general meeting could be given to those entitled to receive it. This provided flexibility and some companies used mechanisms such as advertisement in a newspaper. Under s. 308 of the Companies Act 2006 this flexibility is no longer possble as notice must be given in hard copy, electronic form or by means of a website. Whilst ensuring companies give proper notice of general meetings to members is vital, there are some companies with large memberships where this type of prescriptive approach is unhelpful, burdensome and disproportionately costly. This is exacerbated by the requirement to send a copy of the report and accounts to all members who are entitled to receive notice of general meetings. Previously companies limited by guarantee could take advantage of the exemption to send report and accounts to members who were not entitled to receive individual notice but this is not now the case. Other mechanisms such as publication of a general meeting notice on a website (but without jumping through the hoops prescribed by Schedule 5 of the Act) might suit some organisations better. Surely is it not necessary for legislation to dictate to members of a company the acceptable mechanisms for giving them notice. I do not see why it cannot be left to a company’s own members to determine through their Articles what mechanism for giving them notice would be acceptable to them and, as a consequence, their individual entitlement to be sent a copy of the report & accounts automatically, .Comment Tags: Mechanisms for giving general meeting notice

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3. M Thorne on June 4, 2012 at 10:00 am said:

   Statements of Capital
   Obligation to include the prescribed particulars of the rights attached to each class of shares on annual returns (and all statements of capital, in fact) – we do not believe that any user finds this information helpful and would suggest that this requirement be removed. The requirement to summarise the rights attaching to shares can lead to inaccuracies and this information is therefore not always reliable. If any user wishes to check the rights attaching to shares, they would and should check the company’s articles of association.
   Obligation to disclose the amount paid up and the amount (if any) unpaid on each share (whether on account of the nominal value of the share or by way of premium) – there are a number of practical issues with the requirement, highlighted by the consultation carried out by BIS in 2010 entitled Companies Act 2006 Statements of Capital – Consultation on Financial Information Required. No changes have been made since this consultation was carried out which means that this remains an issue.
   Company Names
   We have encountered a number of difficulties with the rules around names deemed to be the same as another in the Registrar’s Index of Company Names under the Company & Business Names (Miscellaneous Provisions) Regulations 2009 due to the breadth of expressions which result in two different names being ‘deemed to be’ the same and would therefore suggest that they be reviewed.
   We also suggest that the ability to provide consent to the use of a name that is deemed to be the same as that of another company is too limited and should be expanded. For example, a company (Company A) may wish to change its name to one which is deemed to be the same as that of an existing company (Company B), which is not related to Company A. It may be the case that Company B would not have any objection to the proposed change, for example, where the two companies engage in entirely different activities and chances of confusion are slight. However, in such circumstances, at present, Company B is unable to give consent if it does not form part of the same group as Company A.
   In other circumstances, we have had two companies which wish to use similar names (which are deemed to be the same under the Regulations) which do not have a subsidiary/parent relationship as defined in section 141(1) Companies Act 2006, but which are both owned by the same individuals. However, on a technical reading of the consent requirements, the consent cannot be given due to the fact that the companies do not form part of the same group.
   Given these difficulties, we would strongly recommend that the requirement for consent in paragraph 8 of the Regulations be amended, such that it is possible for consent to be given even where the two companies involved do not form part of the same group.

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4. John Hudspith on March 21, 2012 at 10:22 am said:

   The Companies Act 2006 has commendably meant that all of the clauses that were in the memorandum of association can now be included in the Articles of Association rendering the former completely redundant other than as a record of who the original subsribers to the memorandum were. For some absurd reason, companies still have to have a memorandum of association, it cannot be discarded even after adopting CA 2006 Articles containing all the objects clauses. I have never known the need to be able to refer to the original subscribers to the memorandum and in any case if this is of any import, it could be recorded in the articles. When required to produce the company’s constitutional documents, it is [still] necessary to produce the old memorandum with a copy of the resolution showing that its clauses are now to be found in the Articles. This is an absurtdity and means that the company has an increasingly aged and worthless document tethered to it in perpetuity. Can we please have some way of discarding completely the old memorandum once and for all and move to a simple position of having one constitutional document that embodies all of a companies establishment and rules.Comment Tags: Mem and Arts of Assocn

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5. Haren Visavadia on February 25, 2012 at 12:26 pm said:

   Consider introducing a Limited Liability Solotrader (LLS) where the shareholder and director is the same person in addittion that there should be a cap of £35,000 equity without the ability to issue dividend payments instead issue drawings subject normal taxation, the aim is to get rid of many personal company and many contractors using company structure for purpose it was never intended for.Comment Tags: Personal Company

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6. Peter Bibby - Partner, AB Corporate LLP on February 24, 2012 at 12:20 pm said:

   It has always been a legal requirement that when you amend a companies articles of association you should file a new set incorporating all the amendments. In almost 20 years of practice I have never done so and the practice of merely filing the amending resolution has been sufficient. It would appear that Companies House is now seeking to enforce the provisions of the CA 06 strictly. It is difficult to understand why. This change in policy does add to the administrative burden on companies generally and in reality is of very little advantage.Comment Tags: print of articles of association changing artilcles

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7. Kathleen O'Reilly, Head of Internal Legal Services, Jordans Limited on February 20, 2012 at 3:34 pm said:

   Sole director and the model articles
   We have many clients that are confused by the model articles and think that they require two directors . The position seems perfectly clear to us but a significant proportion required changes to their own articles.
   The issue concerns a sole director to the company and whether that sole director can take decisions in relation to the company. To many (including the writer) the position under the Model Articles seems clear. A sole director can undertake decisions in relation to a company in accordance with Model Article 7(2). However, not everyone agrees and there is some confusion on the point.

   What is the confusion and how did it arise?

   Some practitioners in this area including solicitors, accountants and in-house counsel at financial organisations have taken the view that the Model Articles require a minimum of two directors. This seems to be on the basis that there is a minimum of two for the quorum for meetings of directors. Whilst they agree that under the Companies Act 2006 a private company can have one director their argument is that in order for that director to take decisions on his own the Model Articles must be amended.

   Certainly, it seems that amendment to the Model Articles (or further guidance) to clear up the confusion concerning the interrelationship between Model Article 11 and Model Article 7 would be useful.

   Model Article 11 provides as follows:

   “Quorum for directors’ meetings

   11. (1) At a directors’ meeting, unless a quorum is participating, no proposal is to be voted on, except a proposal to call another meeting.

   (2) The quorum for directors’ meetings may be fixed from time to time by a decision of the directors, but it must never be less than two, and unless otherwise fixed it is two.

   (3) If the total number of directors for the time being is less than the quorum required, the directors must not take any decision other than a decision –

   (a) to appoint further directors, or

   (b) to call a general meeting so as to enable the shareholders to appoint further directors.”

   Model Article 7 provides:

   “Directors to take decisions collectively

   7. (1) The general rule about decision-making by directors is that any decision of the directors must be either by a majority decision at a meeting or a decision taken in accordance with article 8.

   (2) If –

   (a) the company only has one director, and

   (b) no provision of the articles requires it to have more than one director,

   the general rule does not apply, and the director may take decisions without regard to any of the provisions of the articles relating to directors’ decision-making.”

   The argument they put forward is that Model Article 11 sets the quorum for directors’ meetings at two and that any attempt to make decisions in any other way will require the appointment of further directors or an amendment to the Model Articles.

   Arguments are that whilst section 7 does state that “if the company has only one director and no provision of the articles requires it to have more than on director etc…”, the Articles do require the company to have more than one director as the quorum for a directors’ meeting is two. There seems to us to be misunderstanding concerning the interrelationship between Model Article 7 and 11. In addition, the quorum provision seems to be viewed as a minimum number of directors provision which in our view it is not. That said, given the confusion on this point we think that this is an area that could usefully be clarified.Comment Tags: Model articles

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8. J Saunders on February 17, 2012 at 5:36 pm said:

   There are a number of areas within the new Companies Act 2006 regime which are burdensome and could be improved:
   – it is unclear, where a company has after 1 October 2009 removed restrictions on its objects and deleted its authorised share capital cap, how that company should make sure that the correct position regarding the form of its amended memorandum is to be made clear to persons requesting sight of the memorandum. Should they produce the original unamended memorandum with a note on the changes that have been made under section 28 or should they reprint the memorandum as amended? Guidance would be welcome.
   – it is not clear whether section 31 CA 2006 prevents a company from engaging in activities outside those set out in any list of objects or whether, provided that the particular activity is not restricted by that list of objects, it is otherwise free to engage in any such activity.
   – the restrictions in CA 2006 as to how directors are to deal with conflicts of interest are unnecessarily complicated and convoluted and often difficult to work through in practice. In many cases they appear to introduce additional paperwork and bureaucracy for companies withresultant legal costs without equivalent benefits. It is often unclear when a director might be in breach of duty. It would be helpful if this duty could be revisited and perhaps replaced with a duty for a director not to act where he has an actual conflict unless he has obtained the approval of the other non-conflicted directors or members. The scope of section 180(4)(b) to prevent a breach of duty arising is also unclear.
   – the position as to whether a company can give a non-member chairman a casting vote should be properly clarified. It is unclear why there should be a distinction between companies incorporated pre and post 1 October 2007 and whether the prohibition on traded companies giving their director a casting vote is to apply only on a poll
   – as other respondents have noted, the current requirements for extensive share rights to be set out in each statement of capital is not only cumbersome and costly but could also possibly lead to the risk of inconsistencies arising between the summary and the articles themselves. It is often difficult with companies that have multiple classes of shares with complex share rights to extract provisions and summarise them accurately in a statement of capital. In addition, if these forms are completed online there is limited space within the relevant boxes for including the required summaries, which consequently means that documents have to be submitted in paper form.
   – when amending or deleting a company’s objects clause, which is now deemed to be in its articles and will therefore require a special resolution which must be filed with an amended set of articles, why should it also be necessary to file an additional notice of the change under section 31(2) on Form CC04. This seems to be an unnecessary additional step.
   – when a company becomes or ceases to be a single member company, it is unclear why there should be an additional requirement for a statement of the fact to be entered in the register of members.
   – the processes for rectification of a company’s registers at Companies House, and for removal of incorrect documents should be simplified.Comment Tags: Companies Act 2006; conflicts of interest; objects clause; casting vote

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9. simon studd on February 9, 2012 at 11:51 am said:

   The model articles are so short that a business person would either have to have an extremely good knowledge of the Companies Act 2006 to understand the position or have to obtain professional advice.
   You need to expand the model articles so they are closer to the old Table A in order to help business people.
   Examples
   1. the model articles do not state how many directors a company must have and that one must be a natural person (answer – find and read sections 154 and 155 Companies Act 2006)
   2. the model articles do not mention the directors duties in sections 171 to 177 so the lay reader would be unaware of them (eg Section 172 – duty to promote the success of the company)
   3. the model articles do not mention, in reg 26, the duty to give a reason for blocking a transfer (see section 771 Companies Act 2006)
   4 the model articles do not refer to the ‘statutory’ shareholder written resolution procedure so a business person will be unaware of them (answer – section 281 Companies Act 2006). They do not mention the ability of shareholders to pass a unanimous written resolution bypassing the statutory procedure (following the re duomatic principle)
   5. the model articles do not state who can call a general meeting (the answer is in section 302 Companies Act 2006)
   6. the model articles do not mention the length of notice for general meetings (the answer is in sections 307 and 360 Companies Act 2006) or the content (the answer is in sections 311, 325 and 324 Companies Act 2006)
   7. the model articles reg 38, states a quorum is needed for a general meeting but not what the quorum is (the answer is in Section 318 companies Act 2006)
   8. reg 42 refers to a vote on show of hands, but not the chairman’s role in declaring the result (the answer is in section 320 Companies Act 2006)
   I have lots of other examples.Comment Tags: Model articles

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10. DM on January 27, 2012 at 8:52 am said:

    At present, there are too many regulations making it extremely difficult to establish the correct legal position under the Companies Act 2006. Many of the regulations could (and should) be consolidated within the main Act, although there is a need to simplify the regulations before consolidation.

    To address some of the questions raised:

    - The regulations should not be scrapped altogether. To some extent, the regulations must have been considered necessary in the first instance, so scrapping them will only lead to confusion and further complexity.

    - Non-regulatory options will be difficult to police. The UK Corporate Governance Code is policed by the investor bodies, so pressure is applied appropriately. Who would do this for unlisted private companies, for example? It won’t be Companies House!

    - As mentioned above, a majority of the regulations cna be consolidated within the body of the Act.

    - There are some areas where the burden could be reduced. For example, there are many dormant companies where annual accounts are irrelevant. It would make more sense to file a form confirming dormancy – from which point no annual accounts or annual return are due until the company files a form confirming that the company is no longer dormant. Within a month, say, the company would be required to submit an annual return and within 12 months of becoming active a first set of accounts should be made up and filed 9 months later. A fine for failure to comply would of course be necessary.

    - I don’t believe that the regulations can be left as they are – we are caught in a web of regulation that costs companies thousands a year in legal costs and exposes those who are focusing on making a profit to the unneccesary penalties of a confusing legal position.

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11. John Sydenham on November 8, 2011 at 4:13 pm said:

    Amend section 284 of the Companies Act 2006 so that there is one vote per member rather than one vote per 10 shares in the case of remuneration:

    284Votes: general rules
    (1)On a vote on a written resolution—

    (a)in the case of a company having a share capital, every member has one vote in respect of each share or each £10 of stock held by him, except in the case of a vote on remuneration where every member has one vote, and

    (b)in any other case, every member has one vote.

    This single small change will have a salutary effect.Comment Tags: companies act remuneration

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12. Earl Hutchinson on October 25, 2011 at 5:42 pm said:

    Out of 50 regs about 30 have appeared in the last 3 years so do the basic math:-

    Each reg takes about 8 hours to find (if you’re lucky), read and research the moronic gov speak.
    Result about 30 days lost out of 600 or 5%.
    Not a lot you may say but for micro businesses like mine it is the equivalent of letting every one of your workers work for two weeks a year for free.
    Add on to this environmental, HSE, local Hitlers, “guidance” and local “support” agencies and the impact is over a month.

    You need
    a restriction on the total number of regulations annually (target 20 then maybe you will focus on getting them right as well)
    they must be in plain english,
    freely available,
    have forums with 24/7 input from the people who develop the regs to provide legally binding answers in 2 days (yes including the week end),
    be widely advertised (Google ads for at least a year),
    have realistic consultation periods (six months advertised in the Caithness Groat is not acceptable),
    have an MP from each of the three parties to champion each one
    have a panel of impacted companies (not the big mega guys but the 1 to 10 employees in the main) to review the regs (be prepared to pay for their time) so that after 12 and 24 months they can an have the power to resolve problems

    You don’t need
    representatives of the vocal and unrepresentative minorities
    representatives of the groups expanding their market share (accountants)
    representatives of non impacted groupsComment Tags: Small business load

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    • Robert Blanks on February 4, 2012 at 11:39 am said:

      By its very nature there is a need for complicated legal statutes and regulations however access to it could be made much simpler.

      BIS should maintain an up to date on line version of the Companies Acts including amendments and regulations so that anyone can access the exact current situation free of charge at any one time.

      I have no doubt that they maintain such a dicument for their own use so make it freely available.

      The only way to get such information now is to buy an expensive reference book which by its nature is out of date the day after publication.Comment Tags: access to law, Companies Act
    • Gemma Steven on February 13, 2012 at 3:54 pm said:

      Legally binding answers are what Courts are for; legislation has to be interpreted.

      However, the government does maintain a website for all UK legislation; legislation.gov.uk. It’s freely available, easily accessible and up to date.
13. Chris Robinson on October 10, 2011 at 8:49 am said:

    Abolish the formalities inserted by the Companies Act 2006 into the passing of written resolutions of shareholders. Before that Act shareholders could get together informally on their own initiative and pass a written resolution on the spot. Now it has to be formally proposed in writing by the directors which requires a formal directors’ decision to propose an informal shareholders’ resolution, and formal content is required in the supposedly informal resolution document. A liquidator does not have power to propose a written resolution. See sections 288(3) and 291 Companies Act 2006.Comment Tags: Resolution formalities Companies Act 2006

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14. Katherine Corich on June 21, 2011 at 1:28 pm said:

    Why does Equality legislation need to written in long winded complex documents that make it inaccessible to the average person?
    If we could simplify the Equality Act down to say 10 or 20 pages, wouldn’t it make it so much easier for people to know their rights and obligations?

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15. IoD on behalf of member on May 20, 2011 at 4:07 pm said:

    We are a small firm with a 35% investment by a large firm. This structure makes it difficult for us to qualify under the rules of the Small Firms Loan Guarantee Scheme. I would like to see the scope of the scheme extended, with more flexibility as to which companies are eligible

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16. Jonathan Crewdson on April 19, 2011 at 2:02 pm said:

    I believe it is unnecessary and overcomplicated to have at least four sets of laws governing “ordinary” limited companies, community interest companies, charitable companies and industrial and provident societies. All of these different entities have their own registries, regulatory bodies and different rules over how they can and cannot operate and yet these and the rules they come under could so easily be rationalised to make things more logical and save money for the taxpayer.

    Firstly, I believe of all the registries operating Companies House is the best established and most extensive. It’s online registry also contains CICs, cross-references with the FSA for IPSs and it also registers political parties. I believe the Charity Commission’s register and the register of IPSs and friendly societies with the FSA should be transferred to Companies House, particularly as many charities are already registered with Company House as well as companies limited by guaratantee, and all limited liability entities plus charities regardless of their limited status (including CIOs, trusts and unincorporated associations) should have to register with Companies House.

    This would produce a single registration process for limited liability organisations. Aside from trusts and associations, it could take an ordinary company as its starting point, then add whether it also includes a statutory asset lock (a feature of CICs, IPSs and charities), whether it was permitted to permanently trade or not (difference between charities and others), and then deal with issues of share capital and membership. If part of this registration involved becoming a CIC or IPS Ben Com then it would go to the equivalent of the present CIC regulator (but within Companies House and also covering IPS Ben Coms) for a decision on this status. If it involved becoming a charity it would go to equivalent of the Charity Commission (again within Companies House) for a decision. Both of those processes involve public benefit tests and they could be applied more consistently than as present (different for CICs, IPS Ben Coms and charities currently). If the registration was for an ordinary private company, limited liability partnership or an IPS for member benefit it would simply be automatically registered.

    As part of this integration of registration and oversight, the legal differences between these types of organisation should also be rationalised into a single entity. A limited company of any type should be able to have both transferable and non-refundable share capital (as most limited companies do) and at the same time have non-transferable and refundable share capital (as IPSs have and can issue publically and is the reason why so many social enterprises use this form to issue “community shares”) and at the same time be able to run non-share memberships or subscriptions with equal rights to shareholders in the company. Thus, a mixed approach of equity and guarantee could be employed. The company would simply fashion this around its individual business needs.

    This would have the added value of allowing small businesses the right to issue non-transferable and withdrawable shares, something IPSs can do, without having to be listed on a stock market and thus open up a new source of investment for business. If charities could also have this right and be allowed to pay a “reasonable” return to investors (as charitable IPS Ben Coms used to be able to do until the new Charities Act) then again it provides a new source of funding for the sector at a time when it is being shrunk.

    Overall this would simplify bureaucracy, apply consistent rules across all types of entity, give more flexibility and open up new opportunities for investment.

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17. Peter Weeks on April 18, 2011 at 2:26 pm said:

    There are some 4.4m businesses in the UK (no-one knows the real number). Over 99% are small or very small, with an average size of 2-4 staff and turnover less than £200K. We want to make it easy for people to start and run businesses without having to waste time with meaningless legal and other stuff going back to Victorian times from when companies were set up mainly to raise money for railways, mines in South America, etc. To make life easy I suggest we establish a standard off-the-shelf Small Business structure that we can all use having standard rules and procedures and powers covering the main areas; tax, control, management, sale, owning property, winding-up and other aspects. A business owner-manager can then just take this without having to worry about self-employed vs partnership vs company limited by shares vs company limited by guarantee vs, etc, etc, etc. Starting a company should be made as simple, cheap and standard as possible so anyone can go online and get an off-the-shelf business registered in less than 30 mins at minimum cost with minimum choices and questions.

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18. Peter Bridgman on April 9, 2011 at 6:56 pm said:

    A wonderful scheme. Very good.

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19. Elizabeth Robillard on April 7, 2011 at 10:00 am said:

    All potential/conflicts of interest MUST be declared to the public without any attempt at obfuscation

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    • Gemma Steven on February 13, 2012 at 3:49 pm said:

      Isn’t this already the case? As far as I am aware, all potential/actual conflicts of interest must be reported.
      The law can’t prevent people from breaking it; although it is illegal to take the life of another, it still happens.
20. Ian Moss on April 7, 2011 at 9:03 am said:

    This rule was archaic in 2006, now it is a nonsense. The cost involved in a mutual company (owned by its members) to send out thousands of letters in hard copy is enormous. People should be emailed by default, and have to request a hard copy rather than the other way round. The only way out of this requirement is to write to everyone and ask them if they would mind not having a hard copy – so the expense is impossible not to incur. Acts as a cost constraint when mutualising small turnover, large membership organisations. email addresses also have the benefit of more permanence than postal addresses when members are likely to move – in our case a Student Union with 30000 student members all of which are transient by year.

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    • Peter Bridgman on April 9, 2011 at 7:01 pm said:

      Suggest you provide that option when a member initially becomes a member of the union. Paper is not dead, and hard copies are invaluable, especially for official documents. You wouldn’t like to receive a title deed or birth certificate by e-mail.

      Further, “email addresses also have the benefit of more permanence than postal addresses” – whilst this may be true in your case, will quite often not be true for the vast majority of companies. E-mail addresses, are, by definition, transient. They can be added, removed, blocked, and changed at will.