Section 37: Right to participate in profits otherwise than as member void

119.     This section restates section 15(1) of the 1985 Act. It provides that a company limited by guarantee without a share capital cannot, by means of a provision in its articles or a resolution of its members, confer on any person a right to participate in its divisible profits otherwise than as a member. As under the 1985 Act, there is no statutory restriction on the members of such companies participating in their profits, unless they have sought exemption from the use of the word "limited" in their names.

Section 38: Application to single member companies of enactments and rules of law

120.     Under section 7 it will be possible for a single person to form any type of company. This section provides that in future any enactment or rule of law that is applicable to companies formed by two or more persons (or having two or more members) applies (with any necessary modifications) to companies formed with one member (or having only one person as a member). This is already the case in respect of private limited companies: see the Companies (Single Member Private Limited Companies) Regulations 1992 (SI 1992/1699).

PART 4: A COMPANY'S CAPACITY AND RELATED MATTERS

121.     This Part replaces various provisions in the 1985 Act about a company's capacity and related matters, including in particular those in Chapter 3 of Part 1 of that Act.

Section 39: A company's capacity

122.     This section provides that the validity of a company's acts is not to be questioned on the ground of lack of capacity because of anything in a company's constitution. It replaces the present section 35(1) and (4) of the 1985 Act, which made similar provision for restrictions of capacity contained in the memorandum.

123.     The section does not contain provision corresponding to section 35(2) and (3) of the 1985 Act. It is considered that the combination of the fact that under the Act a company may have unrestricted objects (and where it has restricted objects the directors' powers are correspondingly restricted), and the fact that a specific duty on directors to abide by the company's constitution is provided for in section 171, makes these provisions unnecessary.

124.     Subsection (2) indicates that the section, like section 35 of the 1985 Act, is modified in its application to charities.

Section 40: Power of directors to bind the company

125.     This section provides safeguards for a person dealing with a company in good faith and restates section 35A and 35B of the 1985 Act. The power of the directors to bind the company, or authorise others to do so, is deemed not to be constrained by the company's constitution. This means that a third party dealing with a company in good faith need not concern itself about whether a company is acting within its constitution.

126.     Subsection (2)(b)(i) of the section replaces part of section 35B of the 1985 Act: an external party is not bound to enquire whether there are any limitations on the power of the directors. The first limb of section 35B (which refers to the memorandum) has not been carried forward. This is concerned with restrictions in a company's constitution that limit a company's ability to act and consequently the powers of the directors to bind the company (the so called "ultra vires rule"). Under the Act, the objects no longer affect the company's capacity to act and so this limb is not necessary.

Section 41: Constitutional limitations: transactions involving directors or their associates

127.     This section restates section 322A of the 1985 Act. It applies to a transaction if, or to the extent that, its validity depends on section 40 and provides that where the party to a transaction with a company is an "insider" (for example, a director of the company or person connected to such a director - see subsection (2)(b)(i) and (ii)), then the protection afforded by that section will not apply. Instead, the transaction will be voidable at the instance of the company.

128.     Irrespective of whether the transaction is avoided, the "insider" and any director who authorised the transaction is liable to account to the company for any gain he has made as a result of the transaction and to indemnify the company for any loss or damage that the company has incurred (see subsection (3)). However, where the "insider" is not a director of the company, it may be possible for him to avoid liability if he can show that at the time he entered into the transaction with the company he was unaware that the directors were exceeding their powers (see subsection (5)).

129.     As now, under subsection (4), a transaction will cease to be voidable in certain circumstances, for example, if restitution is no longer possible.

Section 42: Constitutional limitations: companies that are charities

130.     This section restates section 65 of the Charities Act 1993. It is a qualification of the rules in sections 39 and 40.

131.     It provides that the protection afforded to an external party by sections 39 and 40 will not apply where the company in question is a charity, unless:

• the external party was unaware (at the time that the act was done) that the company was a charity; or

• the company has received full consideration in respect of the act done, and the external party was unaware that the act in question was beyond the company's capacity or beyond the powers of the directors.

132.     Corresponding provisions for charities that are registered in Scotland can be found in section 112 of the Companies Act 1989 (see subsection (5)).

Section 43: Company contracts

133.     This section restates the provisions of section 36 of the 1985 Act.

Section 44: Execution of documents

134.     This section largely restates section 36A of the 1985 Act. It provides that a company may execute a document under the law of England and Wales or Northern Ireland by affixing the company seal or by signature by two directors or by one director and a secretary (or joint-secretary) or (for the first time) by a single director if that signature is witnessed and attested.

Section 45: Common seal

135.     This section replaces the provisions of sections 36A(3) and 350 of the 1985 Act. It permits but does not require a company to have a common seal. If a company has a common seal, it requires the seal to include the company's name: failure to do so is an offence.

Section 46: Execution of deeds

136.     This section restates section 36AA, inserted into the 1985 Act by the Regulatory Reform (Execution of Deeds and Documents) Order 2005 (SI 2005/1906). The only change is to extend the application for the purposes of the law of Northern Ireland.

Section 47: Execution of deeds and other documents by attorney

137.     This section replaces section 38 of the 1985 Act. The 1985 Act does not require the appointment of the attorney to be by deed nor does it say anything about deeds executed on behalf of the company in the United Kingdom. This section provides that a company may appoint, under the law of England and Wales or Northern Ireland, attorneys to execute deeds or other documents on its behalf, and that documents executed in this manner, whether in the UK or abroad, have effect as if executed by the company. It also makes clear that the method for a company appointing an attorney is by instrument executed as a deed, which is the same method by which an individual appoints an attorney.

Section 48: Execution of documents by companies

138.     This section restates section 36B of the 1985 Act. It makes clear that no seal is required regardless of any other statutory provision. The only change is the addition of subsection (1) which makes clear that this section forms part of the law of Scotland only.

Section 49: Official seal for use abroad

139.     This section replaces section 39 of the 1985 Act. It sets out the circumstances and manner in which a company may use its common seal outside the UK.

Section 50: Official seal for share certificates etc

140.     This section restates section 40(1) of the 1985 Act. It enables a company that has a common seal to have an official seal for sealing securities issued by the company and for sealing documents creating or evidencing securities so issued.

Section 51: Pre-incorporation contracts, deeds and obligations

141.     This section restates section 36C of the 1985 Act. A company is not bound by a contract purportedly made on its behalf before it came into existence unless the obligations are novated, i.e. a new contract must come into existence after incorporation on the same terms as the old one. Novation may be express or implied.

Section 52: Bills of exchange and promissory notes

142.     This section restates section 37 of the 1985 Act. A bill of exchange is an unconditional order in writing, addressed by one person to another, signed by the person giving it, requiring the person to whom it is addressed to pay on demand or at a fixed or determinable future time a sum certain in money to or to the order of a specified person, or to its bearer. A promissory note is an unconditional promise in writing made by one person to another, signed by the maker, engaging to pay, on demand or at a fixed or determinable future time, a sum certain in money to, or to the order of, a specified person or to its bearer. Where someone acting under a company's authority makes, accepts, or endorses such an instrument in the name of the company, or on its behalf, this section treats this as if these actions had been done by the company.

PART 5: A COMPANY'S NAME

143.     This Part applies to the name under which a company is registered, sometimes called the "corporate name". This Part regulates the choice of name. The rules are primarily intended to ensure that third parties are not misled. There are no property rights in companies' registered names as such. While there is no requirement for a company to use its registered name in the course of business, this Part also requires a company to disclose its name in specified circumstances.

144.     Sections 70 to 74 provide for the appointment of adjudicators in cases where there is dispute over the registering of a company name. Section 71 safeguards the independence of the adjudicators and section 74 provides a right of appeal to the court.

CHAPTER 1: GENERAL REQUIREMENTS

Section 53: Prohibited names

145.     This section replaces section 26(1)(d) and (e) of the 1985 Act. It retains the existing prohibition of companies registering names that cannot be used without commission of an offence and of those that are offensive.

Section 54: Names suggesting connection with government or public authority

146.     This section replaces section 26(2)(a) of the 1985 Act. It prevents a name being registered without the Secretary of State's approval if it suggests a connection with Her Majesty's Government, a local authority or - which represents a change from the 1985 Act - any part of the Scottish administration, or Her Majesty's Government in Northern Ireland. A new power allows similar protection to be extended to other public authorities.

Section 55: Other sensitive words or expressions

147.     This section replaces sections 26(2)(b), 29(1)(a) and 29(6) of the 1985 Act.

148.     Subsection (1) requires prior approval for the adoption of a name that includes words or expressions specified in regulations. Subsection (2) provides for the procedure to be used for making the regulations. The words and expressions protected by the current Regulations (the Company and Business Names Regulations 1981, SI 1981/1685) include British, English, Scottish and Welsh; chamber of commerce, charity, Her Majesty, midwife, police, and university.

Section 56: Duty to seek comment of government department or other specified body

149.     This section replaces section 29(1)(b) and (2) and (3) of the 1985 Act. It provides power for the Secretary of State to specify whose view must be sought when seeking approval for a name. For example, under the present Regulations, the approval of the General Dental Council is required for the use of either "dental" or "dentistry". Regulations under the new power would be able to replicate this. They could also require the approval of, say, the House Authorities for names suggesting a connection with Parliament.

150.     When a request is made under section 56 in connection with the registration or the change of name of a company, the registrar must be sent a statement that a request has been made, and a copy of the response (see subsections (3) and (4)). But the registrar must no make the response available for public inspections (see section 1087(1)(a)).

Section 57: Permitted characters etc

151.     This section is a new provision. It provides power for regulations to specify what letters, symbols, etc may be used in a company's registered name; the regulations may also specify a permitted format for a name (for example, to prevent the use of superscript or subscript).

CHAPTER 2: INDICATIONS OF COMPANY TYPE OR LEGAL FORM

Section 58: Public limited companies

152.     This section replaces section 25(1) of the 1985 Act (and also section 27(4)(b) and (d) in its application to public limited companies). It brings together in a single provision all the alternative statutory indicators of legal status that must be used by a public company as part of its registered name, i.e. "public limited company" or the Welsh equivalent or the specified abbreviations. This section does not apply to community interest companies.

Section 59: Private limited companies

153.     This section replaces section 25(2) of the 1985 Act (and also section 27(4)(a) and (c) in its application to private limited companies). It brings together in a single provision all the alternative statutory indicators of legal status that must be used by a private company as part of its registered name, i.e. "limited" or the Welsh equivalent or the specified abbreviations. Certain companies are exempt (see section 61). This section does not apply to community interest companies.

Sections 60 to 62: Exemption from requirement as to use of "limited"

154.     These sections replace section 30 of the 1985 Act. Section 30 exempts certain companies from the requirement for their names to conclude with "limited". Exempt companies are also exempt under the 1985 Act from some of the requirements regarding publication of their name but they still have to disclose their limited status in correspondence. Those currently exempt are those with a licence granted under section 19 of the Companies Act 1948 which have delivered a statutory declaration to the Registrar that the company complies with the requirements for the exemption. These requirements are, in effect, that the company is non-profit-making and its objects are the promotion of commerce, art, science, education, religion, charity or any profession.

155.     Section 60 continues the exemption for companies already exempt so long as they continue to meet the conditions and until they change their registered name. It also provides an exemption for charities and allows the Secretary of State to make regulations exempting other companies. Only private companies may be exempt

156.     Sections 61 and 62, which replace section 30(2) and (3), specify the conditions that must be met for a company currently exempt to continue to qualify for the exemption: its objects must continue to satisfy the criteria for their exemption and its articles must both preclude distributions of dividends to its members and also, in the event of it being wound up, require its assets to be passed to a body with similar objects. For companies limited by shares benefiting from an exemption under the 1948 Act (or its Northern Irish equivalent), there is a new requirement that the articles prevent a distribution of capital. This is linked to the change in section 63(4) (see below).

Section 63: Exempt company: restriction on alteration of articles

157.     This section replaces section 31(1) and (5). It prohibits a company benefiting from an exemption under the 1985 Act or the 1948 Act (or their Northern Irish equivalents) from changing its articles in such a way that it no longer meets the requirements for the exemption. It is an offence to change the company's articles in such a way. Many companies with an exemption under the 1948 Act (or its Northern Irish equivalent) were made to include a provision in their memoranda preventing an amendment to their memoranda or articles without the consent of the Board of Trade (there were a number of variations on this theme). Subsections (4) and (5) make provision to remove this administrative burden.

Section 64: Power to direct change of name in case of company ceasing to be entitled to exemption

158.     This section replaces section 31(2) to (6). It gives the Secretary of State power to withdraw a private company's exemption from the requirement for its name to conclude with "limited" and to direct it to change its name if it no longer meets the criteria that applied when it was granted the exemption.

Section 65: Inappropriate use of indications of company type or legal form

159.     This section replaces section 26(1)(a), (b), (bb) and (bbb) of the 1985 Act. These paragraphs restrict the use of various words, expressions and abbreviations that are indicators of legal status for various types of commercial entity, e.g. p.l.c., community interest company, open-ended investment company, etc. Some of the restrictions apply to the use of the particular indicator at the end of a company's name; some anywhere other than the end of the name; and some anywhere in a company's name.

160.     This section provides power to make regulations prohibiting the inclusion in a company's name of specified words, expressions and abbreviations. The only words etc that can be specified in the regulations are those associated with a particular type of company or form or organisation or those confusingly similar to such words and expressions. This section also provides power to require or prohibit the statutory indicators of legal status being used in conjunction with specified other words.

CHAPTER 3: SIMILARITY TO OTHER NAMES

Section 66: Name not to be the same as another in the index

161.     This section replaces section 26(1)(c) and (3) of the 1985 Act.

162.     Subsection (1) retains the present prohibition, in section 26(1)(c), on a company adopting a name that is already on the registrar's index of company names - which includes not only the names of Companies Act companies but various other business entities (see section 1099). Subsections (2) and (3) provide power for the Secretary of State to make regulations to replace the detailed rules presently contained in section 26(3) of the 1985 Act as to:

• what is to be disregarded; and

• what words, letters and symbols are to be taken as the same, or as not the same,

when comparing a proposed and an existing name. At present only "and" and "&" are taken as the same.

163.     The section provides power also to treat as the same:

• currency symbols (e.g. £, $) and their respective English word equivalents;

• "%" and "per cent";

• "1", "2", "3" etc and "one", "two" "three".

164.     The prohibition of names that, under these rules, are the same as an existing name will not be discretionary. But in future, it will be possible for there to be exceptions: subsection (4) provides that the regulations may provide that names which would otherwise be prohibited as being the same may be permitted in specified circumstances, or with specified consent, and that a subsequent change of circumstances or withdrawal of consent will not affect the company's registration.

Section 67: Power to direct change of name in case of similarity to existing name

165.     This section replaces section 28(2) of the 1985 Act which provides power for the Secretary of State to direct a company to change its name if the name is the same as or too like a name already on the registrar's index of company names (or one which should have been there). The objective is to prevent the public being confused by the simultaneous appearance on the register of two very similar names when the similarity is such that the later name was not caught by the non-discretionary prohibition of adopting a name effectively the "same as" an existing name (see section 66).

166.     The section is intended to cover two circumstances. First, any delay in the entry on the index of company names of new names of entities that are not UK companies. Companies House enter all names immediately but there may be delays outside their control. If the name had already been taken by the other entity before the company adopted it, then the Secretary of State will direct the company to change its name. Second, the visual difference between the new name and an existing name being so small that third parties are likely to be confused by the simultaneous appearance of both names on the index of company names.

167.     Subsections (2) and (3) provide power to make regulations, corresponding to that provided by section 66, to replace the detailed rules presently contained in section 26(3) of the 1985 Act as to:

• what is to be disregarded; and

• what words, letters and symbols are to be taken as the same

when comparing a proposed and an existing name. As in section 67, subsection (4) provides for a power to make regulations permitting names that would otherwise be regarded as "too like" in certain circumstances or where consent is given.

Section 68: Direction to change name: supplementary provisions

168.     This section replaces section 28(4) and (5) of the 1985 Act as they apply to section 28(2). It provides a deadline of 12 months for the Secretary of State to direct a change of name under section 67, and for the Secretary of State to specify a period for the company's compliance. It makes failure by the company to comply an offence.

Similarity to other name in which person has goodwill

169.     Sections 69 to 74 are new provisions. They respond to the CLR recommendation (Final Report, paragraph 11.50) that there be provision so that a person can apply for a company to be directed to change its name if the applicant can show that the name was chosen with the principal intention of seeking money from him or preventing him registering the name where it is one in which he has previously acquired reputation or goodwill.

Section 69: Objection to company's registered name

170.     This section provides for any person, not just a company, to object to a company names adjudicator if a company's name is similar to a name in which the objector has goodwill. There is list of circumstances raising a presumption that a name was adopted legitimately. The respondent must show that one of these applies, or otherwise that he acted in good faith or that the interests of the applicant are not significantly affected (for example, where the applicant has hardly used the name at all). The objection will be upheld if the respondent cannot do so, or if the objector can show that the name was registered either to obtain money from him or to prevent him using the name.

Section 70: Company names adjudicators

171.     This section provides power for the Secretary of State to appoint company names adjudicators and their staff and to finance their activities. One of the adjudicators is to be appointed Chief Adjudicator.

Section 71: Procedural rules

172.     This section provides the Secretary of State with power to make rules for the proceedings before a company names adjudicator. The list of matters which the rules may cover is not exhaustive. It also enables the rule to confer on the Chief Adjudicator power to determine any matter that could be the subject of the rules made under this power.

Section 72: Decision of adjudicator to be made available to public

173.     This section requires the adjudicator to publish his decision and his reasons for it, possibly through a website. The publication must be within 90 days of the decision.

Section 73: Order requiring name to be changed

174.     This section is a new provision. If an objection made under section 69 is upheld, then the adjudicator is to direct the company with the offending name to change its name to one that does not similarly offend. A deadline must be set for the change. If the offending name is not changed, then the adjudicator will determine a new name for the company.

Section 74: Appeal from adjudicator's decision

175.     This section enables appeal to a court against the decision of the company names adjudicator. The court will either uphold or reverse the adjudicator's decision, and may make any order that the adjudicator might have made.

CHAPTER 4: OTHER POWERS OF THE SECRETARY OF STATE

Section 75: Provision of misleading information etc

176.     This section replaces section 28(3) of the 1985 Act and, insofar as they support that subsection, section 28(4) and (5). It provides power for the Secretary of State to direct a company to change its name within a specified period in two circumstances. First, if misleading information was given to enable the adoption of the name. Second, if an undertaking or assurance given to enable the adoption of the name has not been fulfilled. The direction can only be made up to five years after the adoption of the name. It is an offence not to comply with the direction.