Company Formation And Powers
Although the provisions of the Companies Act 1985 relating to company powers and the effect of constitutional limits on persons dealing with companies were amended in 1989, the changes that were enacted then were not as far-reaching as some had hoped for. In particular, the requirement for companies to register an objects clause was retained and old doctrines about the public being deemed to have notice of information filed with the registrar of companies were only partially swept away.
The consultation document recognises that the 1989 changes did not solve all of the problems and puts forward suggestions for radical simplification as follows: in their dealings with third parties companies should be deemed to have the capacity to do anything which a legal person could do; there should be no obligation to register an objects clause; constitutional restrictions limiting the authority of directors (including those in the objects clauses of existing companies that could be retained if their operators thought fit) should not affect independent outsiders dealing with a company; the abolition of deemed notice should be implemented in full; and shareholders should be able to bring proceedings to restrain directors, or a person authorised by them, from acting beyond their constitutional powers save that this could not affect the validity of any commitment entered into already.
If these proposals and also the related suggestion that, in the interests of simplification, the distinction between the memorandum and articles should disappear and that companies should have one constitutional document were to be implemented, English law would be brought more closely into line with Commonwealth countries such as Australia and New Zealand which have modernised their own corporate laws in recent years. Generally, the consultation document acknowledges the importance to the review process of learning from other countries' experience and provides a summary of key developments in certain Commonwealth and continental European countries and in the USA.
The point has been made at various places in this book that the obligation on the UK as a member state of the European Union to implement company law directives into its law limits the scope for reform at a purely domestic levelThe proposal to abolish the requirement for companies to file an objects clause is one illustration of this point, because it is uncertain whether for public companies this would be compatible with the Second Company Law Directive. The Steering Group plans to investigate further the question of compatibility but, importantly, the consultation document also raises the possibility of seeking an amendment to European law in this and other areas (principally capital maintenance) where it constrains meritorious reform initiatives.
It is noted that the DTI has begun the process of bilateral discussions with other Member States to see if there is common ground on the need for reform. The consultation document also notes that rights grants under the European Convention on Human Rights, such as the right to freedom of association and to peaceful enjoyment of possessions, impose constraints on UK legislation and the operation of the corporate regulatory system.As well as the needs of small companies and the jurisdiction of regulatory and self-regulatory bodies, the consultation document identifies six other key areas.
These are the scope of company law; company formation; company powers; capital maintenance; electronic communications and information; and the international aspects of the law. Accounting and reporting issues are also singled out as being deserving of early attention.
The internal constitutional structure of companies meaning the respective functions, powers and duties of those who exercise authority and control within a company's constitutional structure is identified as probably the most difficult, important and wide-ranging area still to be covered.
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