The Companies Act 2006 Flashcards
What was the primary purpose of the Companies Act 2006?
The primary purpose was to modernize and simplify UK company law, making it more accessible, reducing regulatory burdens (particularly for SMEs), and supporting a competitive business environment.
What key objectives did the Companies Act 2006 aim to achieve?
The Act aimed to enhance shareholder engagement, ensure better regulation, particularly for SMEs, simplify company formation and operations, and provide flexibility for adapting to future changes.
How does the Companies Act 2006 address directors’ duties?
The Act codifies directors’ duties in Part 10 (Sections 171–177), consolidating common law and equitable principles into statutory form for clarity and accountability.
What is the significance of Section 172 of the Companies Act 2006?
Section 172 requires directors to act in good faith to promote the success of the company for the benefit of its members while considering factors such as employees’ interests, environmental impact, and long-term consequences.
What are the key duties codified in Sections 171–177 of the Companies Act 2006?
- Duty to act within powers (s.171).
- Duty to promote the success of the company (s.172).
- Duty to exercise independent judgment (s.173).
- Duty to exercise reasonable care, skill, and diligence (s.174).
- Duty to avoid conflicts of interest (s.175).
- Duty not to accept benefits from third parties (s.176).
- Duty to declare interest in proposed transactions (s.177).
How does the Companies Act 2006 simplify company formation?
It introduces a streamlined registration process, replaces Table A with Model Articles, and allows private companies to adopt flexible governance arrangements.
What change did the Companies Act 2006 make to financial assistance rules?
The Act abolished restrictions on financial assistance for private companies while retaining restrictions for public companies.
What is the purpose of the Model Articles introduced by the Companies Act 2006?
Model Articles provide default governance rules for private and public companies, ensuring a simplified and standardized framework unless bespoke articles are adopted.
How does the Companies Act 2006 address shareholder rights?
It enhances engagement mechanisms, simplifies decision-making through written resolutions, and strengthens minority shareholder protections, such as unfair prejudice remedies under Section 994.
What role does Part 13 of the Companies Act 2006 play?
Part 13 outlines procedures for company resolutions and meetings, including voting thresholds, written resolutions, and flexibility in AGM requirements for private companies.
What are the reporting requirements under Part 15 of the Companies Act 2006?
Companies must file financial statements, annual reports, and, for large companies, a strategic report addressing their environmental and social impacts.
How does the Companies Act 2006 promote transparency in governance?
By requiring companies to maintain a People with Significant Control (PSC) register and file annual confirmation statements to ensure updated and accurate information.
What are the implications of Section 994 for minority shareholders?
Minority shareholders can seek relief for unfairly prejudicial conduct, ensuring their interests are protected from abuse by majority shareholders or directors.
What is the Enlightened Shareholder Value (ESV) approach under the Companies Act 2006?
ESV encourages directors to balance shareholder interests with broader stakeholder considerations, including employees, the environment, and long-term sustainability (s.172).
How does the Companies Act 2006 address corporate social responsibility (CSR)?
By mandating directors to consider social and environmental impacts (s.172) and requiring large companies to include ESG factors in their strategic reports.
What is the legal framework for distributions under Part 17 of the Companies Act 2006?
Dividends must only be paid from distributable profits to protect creditors, ensuring financial stability and compliance.
How does the Companies Act 2006 address company reconstructions and arrangements?
Part 26 provides a legal framework for mergers, demergers, and creditor-approved schemes of arrangement, balancing flexibility with creditor protection.
What was the impact of Salomon v A. Salomon & Co Ltd (1897) on the Companies Act 2006?
The case established the principle of separate legal personality, which underpins the Act’s provisions on corporate liability and governance.
How does the Companies Act 2006 handle derivative claims?
Part 11 allows shareholders to bring claims on behalf of the company for breaches of directors’ duties, fostering accountability when the company fails to act.
What are the rules on auditors under Part 16 of the Companies Act 2006?
It establishes guidelines for auditor appointment, duties, independence, and liability, ensuring objectivity and reliability in financial reporting.
What is the PSC register, and why is it required under the Companies Act 2006?
The PSC register identifies individuals with significant control over a company, promoting transparency and accountability in corporate ownership.
How does the Companies Act 2006 simplify decision-making for private companies?
By allowing written resolutions instead of physical meetings and removing mandatory AGM requirements.
What flexibility does the Companies Act 2006 provide to SMEs?
It reduces administrative burdens by removing the need for company secretaries, simplifying capital reduction procedures, and allowing tailored governance structures.
What are the criticisms of the Companies Act 2006 regarding regulatory complexity?
Despite efforts at simplification, the Act’s length and detailed provisions can be overwhelming, particularly for SMEs, requiring external advice for compliance.
How does the Companies Act 2006 address auditor independence?
By mandating auditor rotation, limiting relationships with clients, and defining duties to ensure objectivity and unbiased financial reporting.
What are the disclosure requirements for directors under the Companies Act 2006?
Directors must declare interests in proposed (s.177) and existing (s.182) transactions to ensure transparency and avoid conflicts of interest.
How does the Companies Act 2006 protect creditors?
Through restrictions on financial assistance, rules on distributions, and provisions requiring directors to prioritize creditors’ interests during insolvency (s.172(3)).
How are AGM requirements different for private and public companies under the Companies Act 2006?
Public companies must hold AGMs, while private companies are not required to, offering greater flexibility in governance.
What role does the strategic report play under the Companies Act 2006?
Large companies must include a strategic report addressing long-term performance, environmental impact, and governance factors.
What are the legal consequences of breaching directors’ duties under the Companies Act 2006?
Breaches can lead to liability for compensation, restitution of personal gains, disqualification, or legal action through derivative claims.
What is the purpose of Section 239 of the Companies Act 2006?
Section 239 allows shareholders to ratify directors’ breaches of duty, provided the ratification is approved by a resolution of disinterested shareholders, ensuring fairness and transparency.
How does the Companies Act 2006 facilitate capital reduction for private companies?
Private companies can use a solvency statement procedure to reduce share capital without court approval, streamlining the process and reducing costs.
What are the implications of Section 51 of the Companies Act 2006 regarding pre-incorporation contracts?
Section 51 states that if a company enters into a contract before incorporation, the liability rests personally with the individual who made the contract unless expressly stated otherwise.
How does the Companies Act 2006 address conflicts of interest for directors?
Section 175 requires directors to avoid situations where their personal interests conflict with the company’s interests, and conflicts must be authorized by non-conflicted directors or shareholders.
What is the significance of Section 176 in the Companies Act 2006?
Section 176 prohibits directors from accepting benefits from third parties that could compromise their duties to the company, ensuring integrity and loyalty.
How are corporate reconstructions handled under Part 26 of the Companies Act 2006?
Part 26 provides a framework for schemes of arrangement, allowing companies to restructure debt, merge, or reorganize, subject to court approval and creditor consent.
What does Section 414CZA of the Companies Act 2006 require for large companies?
It mandates a Section 172 statement in the annual strategic report, explaining how directors have considered broader factors like employee interests and environmental impact.
What is the role of a confirmation statement under the Companies Act 2006?
A confirmation statement replaces the annual return, requiring companies to confirm or update information held by Companies House annually, simplifying compliance.
What is the impact of Section 994 of the Companies Act 2006 on shareholder disputes?
Section 994 allows minority shareholders to claim relief if they face unfairly prejudicial conduct, such as exclusion from decision-making or misuse of company assets by the majority.
How does the Companies Act 2006 encourage transparency in executive remuneration?
By requiring disclosure of directors’ remuneration in the annual report, including bonuses and performance-related pay, to align with governance best practices.
