As 6th April 2008 approaches and the largely welcomed introduction of the “no company secretary” provision contained in the Companies Act 2006 is nearing implementation, we examine the circumstances where the exemption might not be taken up and in cases where it is, the potential issues which could ensue.
Whilst there is little doubt that the changes in statutory requirements relating to having a company secretary are seen as positive, as previous experiences have shown, alterations in the law do not always materialise in common practice.
Banks and Those Forms
Some banks and individual branches within them have traditionally been slow in recognising changes in both the way companies are incorporated and the manner in which they operate.
A prime example is the PDF certificate of incorporation which Companies House issues following a successful electronic company formation.
Although this document has for many years widely been understood to represent the official registration certificate of a company, numerous instances occur where certain branches within banking organisations have consistently held the PDF document out to be a temporary measure pending the arrival of the real (card) copy from the formation agent.
Pre 6th April 2008 banking application forms require the signature of both the company director and secretary and based on the assumption that these stocks of documents will not be discarded and replaced on the above date, it will be interesting to see whether the sections pertaining to the company secretary cause problems.
In the face of a “if it is there, it must be filled in” methodology and logic, one can imagine how the straight forward process of opening bank account can lead to both confusion and delays.
Diminishing the Standing of Limited Companies
One of the factors which along with the official documentation, the designated number and so on that give a limited company much of its prestige is the fact that there are at least two persons involved in its operation.
This has long been a distinguishing factor in comparing UK companies to sole trader businesses.
Following the introduction of the no requirement for a company secretary, it could be argued that where advantage is taken of this clause, the business is drawing itself closer to its unincorporated cousins and thus losing one of its important distinguishing factors.
A company search which reveals a sole director / shareholder might be seen to lack the authority and weighting of a similar business which has a secretary, a second person involved in the business.
Company Secretarial Duties
It has long since been widely understood that few secretaries of private limited companies actually perform any of the duties as laid out in the traditional role, in situations where this is not the case, these entities might wish to retain the pre 6th April 2008 structure.
Certain tasks such as the completion of the annual return, making appointments or resignations of company officers and issuing shares might be handled by a designated person who is not the director.
In order to formalise this person’s role and the obligations they are committed to, it might just as well serve the purposes of the arrangement to make that person a company secretary.
Going It Alone
The phrase “going it alone” is one which is often used in the context of describing a budding entrepreneur who is a few years away from making their fortune.
The less attractive elements of this scenario might be fear, apprehension and uncertainty.
When registering a company with one director and one secretary, even though the role of primary decision maker might rest with the former, having another person involved at least in a supportive role might have provided some comfort to the person going it alone.
Where a secretary no longer exists, the person is effectively and truly on their own, which in turn might produce greater levels of anxiety and uncertainty and in extreme cases, lead to business failure.
Whilst it is widely anticipated the most new limited company incorporations will chose not to have a company secretary, it is less certain which path existing companies will choose to take.
Even though they would be well within the rights to abandon the constitution under which they were registered, the time and expense of re-drafting memorandums and articles of association might prove to be less attractive.
If existing companies view the new law as unlikely to make any material difference to their business, they might decide to focus on other areas of their company which could increase profitability or meet some other designated goal instead.
It is not possible to state at this stage exactly what effect the 6th April 2008 Companies Act provisions will have on new companies and even less so to estimate its effect on existing businesses.
Given previous situations where long standing laws were relaxed in favour of companies (such as the abolition of the requirement to have a company audit), it would not be unreasonable to predict that there will be widespread acceptance and implementation to the new rules.
The use of secretaries, certainly in the formation private limited companies will become rare.