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.