Section 107: Issue of certificate of incorporation on re-registration

227.     This section restates section 52 of the 1985 Act. As now, it provides that, where the registrar is satisfied that a company is entitled to be re-registered as a private company, she will issue a new certificate of incorporation (which must state that it is being issued on the re-registration of the company). On the issue of a new certificate of incorporation under this section, the company becomes a private limited company and the change to its name and any amendments that were required to be made to the articles take effect.

228.     As now, the certificate of incorporation on re-registration issued under this section is conclusive evidence that the company is now a private limited company and that the requirements of the Act as regards re-registration have been met.

Section 108: Statement of capital required where company already has share capital

229.     This section is a new provision which requires a company that has re-registered from unlimited having a share capital to private limited by shares to file a statement of capital with the registrar in certain circumstances. The statement must be delivered to the registrar within 15 days of the company's re-registration and, where the company fails to observe this requirement, the company and every officer of the company who is in default, commits an offence (see subsection (4)).

230.     The provision is necessary because unlimited companies are required to provide a statement of capital to the registrar in a limited number of circumstances only: in particular, where the company has a share capital on formation (see section 10) or where an unlimited company having a share capital makes an annual return to the registrar under section 854. Consequently, where an unlimited company having a share capital re-registers as private limited by shares under section 107, in contrast to other companies that are limited by shares, the information on the public register pertaining to the company's subscribed capital may be out of date (in particular if the company has allotted further shares subsequent to its formation or, as the case may be, its last annual return).

231.     The requirement for a statement of capital in this section puts companies which have re-registered as private limited by shares under section 107 on the same footing as other companies limited by shares on the register and ensures that the information on the public register is up-to-date. The company will, however, be exempted from the requirement to provide a statement of capital on re-registration where there has been no change to the company's total subscribed capital since it was first formed and registered or, as the case may be, since the company filed its most recent annual return (see subsection (2)).

Public company becoming private and unlimited

Section 109: Re-registration of public company as private and unlimited

232.     This section is a new provision, which, as recommended by the CLR (Final Report, paragraph 11.11), enables a public company to re-register as a private unlimited company with a share capital without first having to re-register as a private limited company. The conditions specified in subsection (2) must be met and all of the members must give their assent to the company being so re-registered. In the case of a deceased member, assent may be given by the personal representative of the deceased member's estate. Where a member is bankrupt, assent may be given by his trustee in bankruptcy (to the exclusion of the member in question).

233.     A public company may not re-register as an unlimited private company under this section if it has previously been re-registered as limited or as unlimited (see subsection (2)). The intention behind this subsection (which is based on the provision in subsection (2)(e) of section 90) is that a company should not be able to enjoy the benefits of limited liability or avoid the obligations that are attached to this, for example, the increased reporting requirements, by continually swapping from limited to unlimited status.

Section 110: Application and accompanying documents

234.     This section is a new provision. It prescribes the contents of the application for re-registration where a company is proposing to re-register from public to unlimited private and the documents/information that must accompany this application. There is a requirement for a statement of compliance (see note on section 13) and, in contrast to the statements of compliance that are required elsewhere in the Act, the statement of compliance that is required here must contain a statement made by the directors confirming that:

• the persons by whom or on whose behalf the form of assent is authenticated constitute the whole membership of the company; and

• if any of the members have not authenticated that form themselves, that the directors have taken all reasonable steps to satisfy themselves that each person who authenticated it on behalf of a member was lawfully empowered to do so.

235.     This mirrors the requirements of the directors' statement in section 103(4).

Section 111: Issue of certificate of incorporation on re-registration

236.     This section is a new provision which requires the registrar to issue a new certificate of incorporation is she is satisfied that a public company is entitled to register as private and unlimited. On the issue of a new certificate of incorporation (which must state that it is being issued on the re-registration of the company), the company becomes a private unlimited company and the change to its name and any amendments that were made to the articles take effect.

237.     The certificate of incorporation on re-registration is conclusive evidence that the company is now a private unlimited company and that the requirements of the Act as regards re-registration have been met.

PART 8: A COMPANY'S MEMBERS

238.     This Part of the Act defines who are a company's members, provides rules relating to a company's register of members and overseas branch registers and, subject to certain exceptions, prohibits a company from being a member of its holding company.

CHAPTER 1: THE MEMBERS OF A COMPANY

Section 112: The members of a company

239.     This section restates section 22 of the 1985 Act. There are additional words to make it clear that the subscribers to the memorandum become members on registration of the company, even if the company fails to enter their names in the register of members.

CHAPTER 2: REGISTER OF MEMBERS

Section 113: Register of members

240.     This section restates section 352(1) to (5) of the 1985 Act. The only new provision is subsection (5) which makes it clear that, for the purposes of this Chapter, joint holders of a share fall to be treated as a single member, so the register need only show a single address although all their names must be stated in the register.

Section 114: Register to be kept available for inspection

241.     This section replaces section 353 of the 1985 Act. Currently, the register of members is required to be kept at the registered office of the company, except that if the company has appointed a third party to maintain or update the register, it may be kept at the office where that work is done, subject to that office being in the jurisdiction where the company is registered. Under the Act, it is immaterial where the work of compiling or updating the register is carried out. Subsection (1) provides that the register must be kept available for inspection either at the company's registered office or at a place permitted under regulations made under section 1136.

Section 115: Index of members

242.     This section replaces section 354 of the 1985 Act. There is no change in the obligation of a company with more than 50 members to maintain an index of the names of the members (which the company is obliged to do unless the register itself is kept in such a form as to constitute an index).

Section 116: Rights to inspect and require copies

243.     This section replaces section 356 of the 1985 Act. Under section 356, the obligation to make the register available for inspection is subject to an exception when the register is closed under section 358 of the 1985 Act. The power to close the register has not been carried forward in the Act and so the obligation in subsection (1) is absolute. The CLR recommended that information in a company's register of members should be made available only for certain specified purposes (Final Report, paragraph 11.44). This section follows this recommendation. It modifies the rights of inspection and to be provided with copies of the register of members and its index. (Section 1137 provides power for the Secretary of State to make regulations about the inspection of records and provision of copies and to set fees.) Subsections (3) and (4), which are new, require those seeking to inspect or to be provided with a copy of the register of members to provide their names and addresses, the purpose for which the information will be used, and, if the access is sought on behalf of others, similar information for them.

Section 117: Register of members: response to request for inspection or copy

244.     This is a new provision. This section provides a procedure by which the company can refer the matter to the court if it thinks that the request may not be for a proper purpose. It replaces the 10-day deadline for compliance with a request with a 5-day period within which the company must either comply with the request or apply to the court for relief from the obligation. If the company opts for the latter, then subsections (3), (4) and (5) apply. Under subsection (3), if the court is satisfied that the access to the register of members is not sought for a proper purpose, it will require the company of the obligation not to comply with the request and may require that the person who made the request pay the company's costs. Under subsection (4), the court may also require the company not to comply with other requests made requests for similar purposes. If the court does not make an order under subsection (3), or the proceedings are discontinued, then, under subsection (5), the company must immediately comply with the request.

Section 118: Register of members: refusal of inspection or default in providing copy

245.     This section replaces section 356(5) and (6) of and Schedule 24 to the 1985 Act. It retains the existing sanctions for the company's failure to comply with a request. They do not apply if the court has directed that the company need not comply with the request.

Section 119: Register of members: offences in connection with request for or disclosure of information.

246.     This is a new provision. It creates two offences. First, in relation to the new requirement in section 116 to provide information in a request for access, it is an offence knowingly or recklessly to make a statement that is misleading, false or deceptive in a material particular. Second, it is an offence for a person to disclose to another person information from a company's register of members obtained under section 116 knowing or having reason to suspect that the other person may use the information for a purpose that is not a proper purpose.

Section 120: Information as to state of register and index

247.     This is a new provision. It implements the CLR recommendation that companies be required to advise anyone exercising their right of inspection or right to demand a copy of the register or index whether the information is up-to-date and, if not, the date to which it has been made up (Final Report, paragraph 11.43). Failure to provide this information renders the company and any officer in default liable to a fine.

Section 121: Removal of entries relating to former members

248.     This section replaces section 352(6) of the 1985 Act. Based on a recommendation by the CLR (Final Report, paragraph 11.40), it reduces the period for which the entry of a past member must be kept on the register from 20 years to 10 years.

Section 122: Share warrants

249.     This section replaces section 355 of the 1985 Act and implements the CLR recommendation (Completing the Structure, paragraph 5.41) in making clear that shares need not first be issued in registered form, but can be issued directly in warrant to bearer form.

Section 123: Single member companies

250.     This section replaces section 352A of the 1985 Act, which implements the Twelfth Company Law Directive (89/667/EEC) on single member private limited liability companies. This section requires a statement to be entered in a company's register of members that it has only one member if that is the case on incorporation or at a later date - if the latter, the date on which it so became must also be entered. It also requires a statement that the company has ceased to have only one member together with the date of the increase. Section 352A of the 1985 Act applies to private companies alone, but this section applies to both private and public companies.

Section 124: Company holding its own shares as treasury shares

251.     This section replaces section 352(3A) as regards the entries required to be made in the register of members where a company holds treasury shares. The effect of that provision is unchanged.

Section 125: Power of court to rectify register

Section 126: Trusts not to be entered on register

Section 127: Register to be evidence

252.     These sections restate sections 359, 360 and 361 of the 1985 Act.

Section 128: Time limit for claims arising from entry in register

253.     This section replaces section 352(7) of the 1985 Act. Based on a recommendation by the CLR (Final Report, paragraph 11.40), it reduces the time limit for claims relating to entries in the register from 20 years to 10 years.

CHAPTER 3: OVERSEAS BRANCH REGISTERS

254.     This Chapter restates the 1985 Act's provisions (section 362 and Parts I and II of Schedule 14) regarding overseas branch registers. It enables companies in specified circumstances to keep in a specified country or territory a register of those members resident in that country or territory. An overseas branch register is deemed to be part of the company's register of members. It differs from the provisions of the 1985 Act in two respects.

• First, rather than providing for an Order in Council, section 129(3) provides the Secretary of State with power to make regulations as to the circumstances in which a company is to be regarded as keeping an overseas branch register.

• Second, section 131 provides power to modify the provisions of Chapter 2 of this Part (relating to the company's register of members) in their application to overseas branch registers.

CHAPTER 4: PROHIBITION ON SUBSIDIARY BEING MEMBER OF ITS HOLDING COMPANY

255.     This Chapter is a restatement of the provisions of section 23 of the 1985 Act and Schedule 2 to that Act as it applies for the purposes of that section. Unless in circumstances covered by an exception, a company cannot be a member of its own holding company. There is no change of substance to the provision in the 1985 Act.

PART 9: EXERCISE OF MEMBERS' RIGHTS

256.     The CLR considered the rights of persons other than the registered shareholders, presenting their recommendations in Chapter 7 of the 'Final Report'. The new provisions in Part 9 have been developed with these recommendations in mind and are designed to make it easier for investors to exercise their governance rights fully and responsibly. Nowadays when investors, whether major institutional investors or retail investors, buy shares in a listed company they are increasingly likely to hold their shares through an intermediary or a chain of intermediaries. This means that it is an intermediary's name that appears on the company's register of members. As a result investors typically have to rely on contractual arrangements with the intermediaries both to obtain information from the company and also to give any instructions they wish about how shares should be voted.

257.     This Part of the Act introduces new provisions dealing with the ability of indirect investors to exercise governance rights. The first section in the Part removes any doubts as to the ability of companies to make provision in their articles for others to enjoy and exercise membership rights and enables indirect investors to enjoy information rights via the registered member. The next group of sections provides that indirect investors in traded companies can be nominated by the registered member to receive company documents and information. It is up to the registered member, typically a broker, to decide whether to nominate or not. The last two sections in the Part make it easier for registered members to exercise rights in different ways to reflect the underlying holdings and allow indirect investors to participate in, for example, requests for resolutions at the AGM. The provisions of this Part should be looked at together with sections 324 to 331 on proxies in Part 13, which enable the registered member to appoint indirect investors as proxies to exercise voting rights.

258.     An important principle to note is that the information rights and exercise of other rights where shares are held on behalf of others can be initiated and enforced with the company only by the registered member. This Part does not compel the registered member to confer such rights on third parties. It will be for indirect investors, such as shareholders holding through a nominee, to choose a nominee operator who offers such rights as part of their service.

Effect of provisions in company's articles

259.     Section 145 protects arrangements through company articles to enfranchise indirect investors and provides that where a company makes provision, through its articles, to extend rights to those holding shares through intermediaries, the provision is legally effective in relation to various statutory requirements.

Section 145: Effect of provisions of articles as to enjoyment of exercise of members' rights

260.     This section (subsection (1)) allows a company's articles to enable a member to identify another person or persons as entitled to enjoy or exercise all or any specified rights of a member. The articles may specify that this entitlement can apply only to certain rights or to all rights, except the right to transfer the shares. As subsection (4)(b) makes clear, the right to transfer shares must remain, as under the 1985 Act, with the member whose name is on the register.

261.     Subsection (2) provides that where a company makes relevant provision in its articles, all the relevant references in the Companies Acts to 'member' should be read as if the reference to member was a reference to the person or persons nominated by the member. Subsection (3) provides a non-exhaustive list of the provisions in question.

262.     Subsection (4)(a) makes clear that non-members do not have direct enforceable rights against the company. They should enforce their rights through the member whose name is on the register and who has the right to enforce the articles.

Information rights

263.     Sections 146 to 150 introduce new provisions enabling indirect investors to be appointed by the registered member to receive information that is sent to members by the company. These provisions apply only to companies traded on a regulated market. The Secretary of State may extend or limit the classes of companies to which these provisions apply through the power provided under section 151.

Section 146: Traded companies: nomination of persons to enjoy information rights

264.     Subsections (1) and (2) provide new rights for members of companies whose shares are traded on regulated markets to nominate those on whose behalf they hold shares to receive information that is sent to members direct from the company and to exercise certain rights.

265.     Subsection (3) sets out what is meant by 'information rights', namely the right to receive all communications that the company sends to members, the right to require copies of accounts and reports (as in section 431 or 432), and the right to require hard copy versions of documents (section 1145).

266.     Subsection (4) refers to section 426, which allows under certain circumstances for summary financial statements rather than full accounts to be sent out as part of the general information. These must also be sent to nominated persons.

267.     Subsection (5) provides that the company does not need to respond to a nomination that specifies only certain information rights.

Section 147: Information rights: form in which copies to be provided

268.     This section deals with the way in which information is to be provided to a nominated person. Subsection (2) explains that if a nominated person wants communications to be in hard copy, they must ask the member, providing a postal address, before the nomination is made. If the member then passes this on to the company, under subsection (3) the nominated person will have the right to receive hard copy communications.

Section 148: Termination or suspension of nomination

269.     This section provides that a nomination will stop having effect on the request of the nominated person or the member (subsection (2)), or on the death, bankruptcy or winding up of the nominated person or the member (subsection (3)).

270.     Subsection (5) explains that all nominations made by member will be suspended if there are more nominations that the total number of shares, and subsection (6) makes similar provision where there are different classes of shares.

Section 149: Information as to possible rights in relation to voting

271.     This section requires the company, when sending a meeting notice to nominated persons, to include a statement that the nominated person may have voting rights that he can exercise through the person who nominated him.

Section 150: Information rights: status of rights

272.     This section deals with the rights arising from a nomination under section 146, and in particular provides that it is the member, rather than the nominated person, who can enforce the rights against the company.

Section 151: Information rights: power to amend

273.     This section gives a power for the Secretary of State to amend the provisions of sections 146 to 150. The power allows for changes in the companies covered, the circumstances in which nominations can be made and the rights conferred by nomination.

Effect of rights where shares held on behalf of others

274.     Sections 152 and 153 enable indirect investors, via the registered member, to exercise voting and requisition rights by making it easier for registered members to exercise rights in different ways to reflect underlying holdings and by allowing those on whose behalf they hold shares to participate in requisitions. These two sections apply to all companies.

Section 152: Exercise of rights where shares held on behalf of others: exercise in different ways

275.     This section provides that a member can choose to split his holding and exercise rights attached to shares in different ways. This is to accommodate members who hold shares on behalf of more than one person, each of whom may want to exercise rights attaching to their shares in different ways. So, for example, it enables votes to be cast in different ways. Subsection (4) provides that if the member does not make it clear to the company in what way he is exercising his rights the company can assume that all rights are being dealt with in the same way.

Section 153: Exercise of rights where shares held on behalf of others: members' requests

276.     This section deals with four situations where the shareholder threshold required to trigger a right is 100 shareholders holding £100 each on average of paid-up capital. Indirect investors are able to count towards the total subject to certain conditions, intended to ensure that only genuine indirect investors are allowed to count towards the total, that the same shares cannot be used twice and that the indirect investor's contractual arrangements with the member allow the former to give voting instructions.

PART 10: COMPANY DIRECTORS

277.     This Part replaces Part 10 of the 1985 Act (enforcement of fair dealing by directors), the provisions relating to directors in Part 9 of that Act and the provisions relating to confidentiality orders in Part 25 of that Act. It also introduces a statutory statement of directors' general duties to the company.

Who is a director?

278.     Section 250 defines a director as including any person occupying the position of director, by whatever name called. This is the same as the definition contained in section 741(1) of the 1985 Act. The Act does not attempt a more detailed definition of a director because it is important to ensure that the term is applied to anybody who exercises real power within the company, particularly in relation to decision taking. The term "director" therefore includes:

• an executive director who has been properly appointed by the company;

• a non-executive director who has been properly appointed by the company;

• a de facto director (that is, a person who has assumed the status and functions of a company director even though he has not been properly appointed).

279.     A "shadow director" is defined by section 251 as "a person in accordance with whose directions or instructions the directors of the company are accustomed to act". The section provides that a person is not to be regarded as a shadow director by reason only that the directors act on advice given by him in a professional capacity. This definition is the same as the definition contained in section 741(2) of the 1985 Act.