Article

Companies Act 2006 - Greater use of Electronic Communications

Background information

During the consultation exercise prior to the introduction of the Companies Act 2006 considerable emphasis was placed on seeking improved communications and greater transparency in the relationship between companies and shareholders. The perceived benefits of greater use of communication by email and through websites include:

= significant cost-savings for companies by being able to communicate electronically
= improved accessibility to corporate information for shareholders
= increased dialogue between companies and shareholders, giving shareholders more confidence to invest
= a reduction in the administrative burden on companies, particularly smaller private companies.

One change introduced by the Act for this purposes is that, since 1st January 2007, companies have been able to file all incorporation and administrative documents electronically. In reality, companies were already using this facility for certain documents but there is now a formal obligation on Companies House to receive and retain these documents in an electronic format.

A further and significant change is that, since 20th January 2007, a company may communicate by email with its shareholders for all purposes if they have agreed to this. The Act also provides that a company may communicate by means of a web site with its shareholders if they agree.

Practical steps

In order to take advantage of these changes, a company will need to obtain the consent of each intended recipient. If the shareholder does not consent, the company will need to continue to send information in hard copy form.

In order to use web site communication with its shareholders, a company will need to obtain a resolution of its shareholders to amend its Articles of Association permitting the company to communicate in this way. If the Articles already allow for communication through the company’s web site, the company will need to:

(a) ensure that its Articles are not restricted to the communication of specific
documents only, such as the annual report and accounts; and
(b) obtain the consent of each intended recipient. The shareholder will be deemed to
have consented if contacted but no response is received within 28 days.

If the shareholder does not consent, the company must continue to send information in hard copy form. Companies should be aware that where shareholders have received information otherwise than in hard copy form, they can require the company to send them the information in hard copy form at any time, irrespective of any shareholder resolutions or consents which may previously have been passed or given. A shareholder will not, however, be deemed to have agreed to accept web site communications if the company’s request does not explain clearly the consequences of failing to respond or the company seeks the shareholder’s agreement more than once in any 12 month period.

Issues to consider

The changes give rise to a number of purely practical issues that companies should consider:

= when contacting shareholders to ask for permission to supply documents via its web site, companies should make it very clear that by not responding, its shareholders will be taken to have consented and that (save where otherwise expressly provided in the wording of the notice) by responding in any form, shareholders will be deemed to have not consented
= companies will need to make a separate email address available for email communication and issue guidance for shareholders on what messages the company will receive at that address
= all meeting notices and voting forms will need to be amended to include this email address and an explanation of shareholder rights, possibly using different forms for shareholders who have agreed to receive electronic communications
= companies will also need to consider whether there should be any identification requirements for senders of email communications, such as password protection.

Points to note

If a shareholder has already consented to receiving documents through the company’s website, that permission will remain valid until retracted. However, that permission will only extend to the specific documents that a shareholder has agreed to receive through the web site. If a company intends to use the web site to supply other documents, it will need to obtain broader permission from the shareholders.
A company must notify shareholders when new documents are posted to its web site, although if shareholders have consented to receiving documents through the web site, it is likely that they will already be communicating with the company by email. Quoted companies are subject to more onerous requirements, set out in the Disclosure Rules and Transparency Rules issued by the Financial Services Authority.

Comment

These changes should be beneficial to UK registered companies. Although companies will have to deal with the administrative burden and associated costs of asking shareholders upfront for consent, in the medium to long-term, there should be significant cost-savings.

The obvious point to make, though, is that as the vast majority of UK registered companies are small, private companies, with a very small number of shareholders, the number of companies who will benefit from these changes is proportionately small. From the shareholder’s point of view, the changes will either be a benefit or be neutral in the sense that shareholders can continue to receive hard copy documents if they wish. It remains to be seen whether the changes do result in a greater degree of communication between companies and their shareholders.

For further enquiries please contact James Partridge (view full profile) on 01892 701280 or email james.partridge@ts-p.co.uk.

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