Company law- act of 2006


Indeed, there are some major changes that were made by the Company Act-2006. These changes were made to make sure that they replicate current needs so that it is easier to set up and run a corporation both at the present and in the future. These changes have greatly, sometimes directly and other ways indirectly, helped in the formation, promotion and management of the company. Some of these changes include: (Keenan & Riches, 2007, p. 78) though, the following work dwells in most of these areas of change, it would mainly concentrate on the director’s duties and the articles of association.

Elimination of the prohibition on monetary assistance for private companies

Companies have been forbidden from providing monetary assistance for the acquisition of their shares. Some of the monetary support includes: providing a mortgage, conceding security over a corporation’s assets or giving an assurance to facilitate a consumer to acquire shares in the corporation. It then follows that there are severe penalties for breach of this proscription and these include; a fine for the corporation and a term of incarceration for directors in defaulting. (Media, 2006, p. 62)

To evade being caught by these provisions and to facilitate corporations to offer support, there is at present a constitutional “get-out”, identified as the “whitewash” process. It should be noted that all the directors of a corporation have to vow a statutory statement to the corporation’s solvency, and this has to be supported by an assessor’s statement, and at times a unique declaration. (Griffiths, loose, etal, 2008, p. 65)

This proscription on monetary assistance was revoked for confidential companies from 1 October 2008 and this resulted to no need for private corporations to act in accordance with the whitewash process that resulted to abolishment. (Bohm, 2007, p. 88)


The affirmative effect of this growth is that managers do not have to be anxious any more regarding the danger of unlawful liability for violation of the provisions. Moreover, failure of abandoning the whitewash procedure resulted to the communication being simpler. This resulted to the reduction the duration of time and the outlay of some dealings. (Campbell, 2006, p. 90)

The revoke of the proscription on monetary assistance is a salutation expansion for private corporations. The moment in time and operating cost taken up, predominantly pulling together the supporting monetary information from the auditors, can at the moment be given out. Nevertheless, there are still some issues that need to be considered and these include; the fact that managers have a legislative duty to take action in a manner that they regard as to be most probable to endorse the achievement of the corporation for the advantage of its associates as a whole.

Consequently prior to carrying out a deal that ought to beforehand have capable as monetary assistance, managers should think about whether it would in reality benefit the corporation. They ought to consider the wellbeing of creditors, whether insolvency is a concern, and also act in accordance with universal corporation law in relation to investment preservation so as to ensure that dealing with shareholders do not make up illegitimate capital decrease. (Ashton, 2006, p. 96)

Reduction of share capital

Private corporations are at present able to lessen their share capital by extraordinary declaration if all of the managers sign a declaration in the requisite form as to the solvency of the corporation over the subsequently twelve months with regard to both dependent and forthcoming liabilities. According to the new law, a manager making a solvency declaration without rational grounds for the view articulated in it commits an illegal offence. It then follows that the directors ought to sign the declaration on the same day however, it should be noted that they should not be in similar locality. (Bainbridge, 2009, p. 102)

The reserve fashioned on the decline of share capital can be termed as a realized profit (this is based on the fact that there is nothing opposing to this in the memo or articles of association) and so as a result, it can be set off in opposition to realized losses. For this reason, it is probable not only to do away with an accrued loss but also to generate instantaneously dispersed profits. Share capital for these principles includes the share premium account and whichever capital emancipation reserve. In addition to this, at least one non-redeemable share ought to stay put after the reduction and so termination schemes will still necessitate court approval. (


This will enable corporation to give back cash to shareholders much more rapidly and cost efficiently. Moreover, under the solvency declaration process creditors have no right to object. Managers will definitely need to reflect on the creditor position and cash flow solvency of the corporation very cautiously and will desire at the very least to reflect on up to date administration accounts and may even necessitate some backing from its auditors. (

Objection to company names

According to the law, from 1 October, it was probable for anybody and not only a corporation to object to a corporation’s name. It then follows that objection could be made by a candidate on the view that the name is the similar as a name connected with the candidate in whom the applicant has good will, or that it is adequately alike to be deceptive. Here, goodwill comprises “reputation of any description”. The objection ought to be made to a corporation names arbitrator. It is then for the corporation (jointly with its associates or directors, if connected as respondents) to demonstrate that certain state of affairs apply, and as a result, it then follows that the name ought to stand. (

A good illustration can be seen where the corporation could dispute that the name was adopted in good faith or that the wellbeing of the candidate are not considerably unfavorably affected by the corporation’s use of that exacting name. It then follows that the name nevertheless, would not stand in spite of the above, and this is based whether the candidate could provide evidence that the major rationale of the respondent in listing the name was to acquire money from him or to put a stop to him cataloging the name. (

Businesses that comprise a sole trader or joint venture will have the right to entity to a limited corporation name on grounds is too like its own. These disagreements will be heard by new corporation names board of adjudicators. Businesses ought to reflect on whether any of their names are legally responsible to be objected to, and if there are corporation names they desire to object to. (Bainbridge, 2009, p. 105)


These new-fangled rules will preside over the events before a corporation names adjudicator. An arbitrator can direct a corporation to alter its name and set a limit for such change. If the given name is not changed by the limit, the arbitrator may decide a new name for the corporation. This new-fangled rule ought to make it easier to thwart the opportunistic registration of corporation names. (

Trading disclosures

This was enacted as a company act. The set of laws include where and how a corporation’s register name, place of work and other particulars ought to be demonstrated and how to act in response to enquiries regarding the corporation’s records. (Taylor, 2008-9, p. 67)


Basing on this change, the corporation had to act in response within 5 working days to the printed queries from whichever person it contract with in the course of dealing, and also should include where its proceedings can be examined(Rose, 2008, p. 93). This is done to prevent any setbacks and as a result, the company’s have been reporting tremendous results.

Duties of directors relating to conflicts of interest and declarations of interest by directors

The directors have continued to keep the duty they always held. The superseding duty is to take action in the way the manager considers, in good faith, would be most probable to endorse the success of the corporation for the advantage of its affiliates as a whole. Generally, managers’ behavior will be unaffected, even though there are precise new-fangled rules governing managers whose individual interests clash with their corporation. (Hopkins, 2007, p. 78)

The provisions connecting to the duties to shun conflict and to announce interests came into power on 1 October 2008. Some of these responsibilities include; (Campbell, 2007, p. 86)

The duty to shun a situation in which the manager has, or can have, a direct or indirect attention with a third party that clash, or probably may clash, with the wellbeing of the corporation. The responsibility not to recognize an advantage from a third party bestow by reason of his being a manager, or his doing (or not doing) whatever thing as manager. The responsibility to speak out beforehand the nature and degree of an attention in a projected deal or agreement with the corporation. The obligation to speak out the personality and extent of an attention in an existing deal or agreement with the corporation.

It should be noted that the no-conflict obligation is that for Private Corporation and that the self-governing directors can endorse a conflict of interest and that the self-governing directors of a public corporation can do the alike provided the piece of writing specifically sanction the board to offer such authorizations. Beforehand, such third party disagreement would more often than not have requisite investor endorsement if the issue was not by now enclosed by the articles of alliance. (


The duties placed on directors were more clarified and made transparent. The innovative no-conflict duty only pertain to situations arising either on or after 1 October 2008 although since a disagreement may occur post this date except relating to a state of affairs in subsistence pre this day, the secure course of act is for corporations to determine prior to 1 October what possible conflicts its managers might have and to give permission these at the onset. (Campbell, 2006, p. 95)

In regard to the directors’ statement of interest, the well-known references in the board minutes were to pronounce interests under the section 317 of corporation Act 1985; however, this would necessitate amendment together with some of the events for declaration of these interests. (Taylor, 2008-9, p. 77)

The Role of the Articles of Association

The articles often needed for the internal issues of the corporation. There is the possibility of using the Performa articles on incorporating the company. Articles are In fact an opportunity for the promoters to observe the way company runs. The term Promoters, in the sense, means the directors as well as the shareholders.


The articles turns out to be an indispensable aspect of the constitution as articles enables the company to adopt the table A completely or avoid it completely, or even adopt it partially, thus making the effect really far reaching. Under company Act 2006 the articles were expanded to become the single constitutional document. Once the memorandum and articles are registered the document binds the company and it’s members to such an extant of having made a covenant.

The provision on this said that disputes should be addressed with arbitration before the litigation. Members, when in need of selling the share, should offer them to the board who will buy them. Thus compelling the board to buy the shares.

Control of political donations and expenditure-independent election candidates

A corporation will need to have preceding shareholder endorsement before making political contributions to opinionated parties, opinionated organizations or self-governing voting applicants, or incurring opinionated spending in relation to them. This rule came into effect on 1 October 2007 although will only broaden to cover self-governing election applicants from 1 October 2008. (Bohm, 2007, p. 99)


This superfluous time was prearranged to corporations to facilitate them to pass suitable resolutions, as the preceding law did not pertain to self-governing vote candidates. (Griffiths, loose, etal, 2008, p. 74)

Annual Returns

An innovative form of twelve-monthly return was accomplished. A difference was made between traded and non-traded corporation for the purpose of shaping the (reduced) information regarding shareholders to be revealed in twelve-monthly proceeds that are made up to a date on or after 1 October 2008. (Ashton, 2006, p. 100)


This new-fangled regulation will facilitate companies to incorporate the names and addresses of all shareholders who grasp at least 5% of the issued shares at any time throughout the come back period, and that for non-traded corporation, the twelve-monthly return will incorporate the person’s name of all the shareholders and not the addresses. (Bainbridge, 2009, p. 107)

Corporate directors

Corporations will at present need to have at least one manager who is a normal person (individual), so a corporation cannot have all business directors. There is nonetheless, a grace era until October 2010 for any corporation which did not have at least one manager who was a normal person at the moment in time when the Companies Act 2006 acknowledged Royal Assent. (Keenan & Riches, 2007, p. 87)

Under-age directors

Directors will at present have to be at least 16 years of age as contrasting to the higher limit of 70. It was endorsed that any manager aged below 16 on 1 October 2008 will mechanically stop being a manager on that date. A corporation may not only have companies as directors- at least one manager ought to be a person. Managers may maintain their residence addresses private by informing a service lecture to Companies House, and for the Corporation’s Register of Directors. The corporation ought to maintain a private Register of Directors’ Residential Addresses. Moreover, corporations ought to evaluate the masterpiece of the board, and any supplementary as the fresh rules approach. (


The Company Act 2006 has an effect on every aspect of company practice. In various ways, the Act initiates reception de-regulatory improvement for private corporations. Nevertheless, for quoted corporations, it adjoins to their escalating authoritarian burden, particularly in relation to monetary reporting, dealing with circumlocutory investors and moreover with regards to the director duties and articles of association. .



Ashton, H. (2006) The Company Secretary’s Handbook: A Guide to Duties and

Responsibilities. New York: Kogan Page Publishers. ISBN: 0749447559.

Bainbridge, D. (2009) International Property. University of Western Ontario: Trans-

Atlantic Publishers. ISBN: 1405859202.

Bohm, P. (2007) Business Law: A Guide for Entrepreneurs. University of Michigan:

Jordan. ISBN: 1846610370.

Campbell, D. (2006) International Securities Law and Regulation 2006_Volume 1.

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Campbell, C. (2007) International Liability of Corporate Directors. University of

Western Ontario: Publishers. ISBN: 143570228X.

Griffiths, M. Loose, P. etal (2008) The Company Directors: Powers, Duties and

Liabilities. New York: Jordan. ISBN: 1846610893.

Hopkins, R. (2007) The Law of Tax-Exempt Organizations. University of Western

Ontario: John Wiley and Sons. ISBN: 0470037601.

Keenan, D. & Riches, S. (2007) Business Law: UK Edition. University of Michigan:

Pearson Education Publishers. ISBN: 1405846976.

Media, G (2006) Company Act 2006. University of Western Ontario: BoD Books on

Demand Publishers. ISBN: 3937473173.

Rose, Ed. (2008) Employment Relations. University of Michigan: Pearson Education

Publishers. ISBN: 0273710087.

Lecture Notes

Taylor. C (2008-9) Company Law. University School of Management. John and Wiley

Sons Publishers.