The relationship between directors and their companies is set to change dramatically following the passing of new legislation this week.
The Companies Act, which will bring about the biggest shake-up of company law in over 20 years, received Royal Assent on Wednesday (8 November).
Businesses have until October 2008 to comply with the new legislation, although parts of the Act are expected to come into force before then.
As expected, directors have a number of new obligations to comply with, such as promoting their company’s success and exercising independent judgment.
When exercising these obligations, directors will have to consider the effect of their actions on a wider group of stakeholders – not just shareholders - but also employees, consumers, suppliers and the environment.
Other changes brought in by the Act include the option of online communications with shareholders, a new offence for including misleading or false material in an audit report, extended rights for shareholders to sue directors for negligence and the right to choose whether to appoint a company secretary.
Alistair Darling, secretary of state for trade and industry, said, “The Act will make sure the regulatory burden of business is ‘light-touch’,” adding that it will help small businesses save up to £100m a year.
However, Jai Bal, a partner at law firm Farrer & Co, claims that the new rules on statutory duties will initially cause confusion when applied in the courts.
“A number of commentators have been more critical, claiming the changes will discourage people from becoming directors, restrict delegation to committees and make board meetings tortuously long 'back-covering' exercises.”
© Crimson Business Ltd. 2006
