The Companies Act 2006
Electronic communication provisions - Have you made the required changes?
The Electronic Communication Provision came into effect on 01 January 2007.
If you are a limited company this act requires
- your company registration number
- place of registration
- registered office address
If you are a limited company you need to include your company registration number, place of registration and registered office address on all your email footers, order forms and websites, in legible characters.
The Companies Act 2006 received royal assent on 8th November 2006.
Although designed to benefit small businesses through a simplification of many corporate procedures, it will have a substantial impact on the way in which they work.
The date of commencement of all parts of the Companies Act 2006 will be October 2008. However, the provisions on company communications to shareholders and others - including electronic communication will commence on 20 January 2007.
We have put together a brief overview of the section immediately relevant to all website owners, and then a slightly more in-depth description of the Electronic Communication Provision.
This is a detailed (700 pages) and complex piece of legislation - the longest Act ever to pass through Parliament – and we are in.
A brief overview of the section relevant to website owners from 1 January 2007
It is already a requirement that your company's name should appear clearly
in all business letters, cheques and other documents. As from 01 January 2007,
it is now also required to appear clearly on all its websites.
Apart from the company name, the following are also now required on all business letters:
The place of registration and registered number of the company
The address of the company’s registered office
If the company is an investment company, the fact that it is such a company must be stated.
If the company is a limited company exempt from the obligation to use the word "limited" in its name, the fact that it is a limited company must be stated
These requirements apply to all company documents whether the document is in hard copy or electronic or any other form.
So, in a nutshell, if you are a limited company you need to include your company registration number, place of registration and registered office address on all your email footers, order forms and websites, in legible characters.
Electronic communication provisions of the Companies Act 2006
The Government has indicated that the e-communication provisions in the Companies Act 2006 will be implemented by January 2007, as it is felt that these provisions will bring substantial cost saving benefits to many companies.
This is a brief and simplistic summary of the key points that relate to private companies whose shares are not admitted on any regulated market.
Under the current law, companies can send certain documents – notices and copies of their annual accounts, directors' report, auditors' report or summary financial statements – by means of electronic communication if the company and the recipient has agreed to this and the recipient is notified of the publication on the website if this is the means of e-communication chosen.
Members can send requests to hold general meetings and appointment of proxies by means of e-communication.
The provisions in the Act are designed to allow any information or documents to be communicated in electronic form, providing the requirements of the Act are fulfilled.
Definitions in the Act
Before looking at what the rules are, we need first to understand some of the terminology used in the Act.
Electronic form: The document or information will be sent by electronic means (i.e. email/fax), or by any other means whilst in electronic form (i.e. on a disk or other electronic storage device).
Electronic means: the term used to describe the electronic process by which data is sent and received. A document or information sent by "electronic means" must be in such a form that the sender reasonably considers will enable the recipient to read it and retain a copy of it. This means that the document or information can be read with the naked eye, or, if it consists of images, pictures, plans etc, it can be seen with the naked eye.
Different rules for different companies
The Act distinguishes between communications BY a company and communications TO a company. Where two companies are communicating, only the rules relating to communications BY a company apply.
Communications TO a company
If the company agrees, documents can be sent to or served on a company by electronic means. The address is that specified by the company and so, for example, it could be an email address or fax number.
The Act says that in some situations the company is deemed to have consented to receiving documents electronically. For example if it publishes an electronic address in a notice convening a general meeting, the Act provides that the company is deemed to have consented to receiving documents relating to that meeting, such as proxies, at the electronic address.
If a document is sent in electronic form by hand or by post (for example on a CD or floppy disk) then it must be sent to the company's registered office or to the address provided by the company for hard copy correspondence.
The company may also agree to receive documents in a form other than hard copy or electronic, subject to any requirements or contrary provision in the Companies Acts.
Communication BY a company
If the recipient agrees, the company may supply information and documents in electronic form, to the address provided for that purpose by the recipient.
Again, if the document or information is sent in electronic form by post or delivered by hand (e.g. on a disk), it must be handed to the intended recipient or sent or supplied to an address to which it could be validly sent if it were in hard copy form.
Publication on website
A company may communicate via its website with its members. To do this:
The members must resolve that the company may communicate with members through a website or the company’s articles must contain a provision to this effect. The resolution must be filed at Companies House.
Each member must be individually asked by the company to consent to communication by means of a website (either generally or in relation to specific documents).
The company’s request must clearly state the effect of a failure to respond by the member (eg that he would be deemed to have consented if he does not reply within 28 days starting with the date on which the request is sent).
The company's request must not be sent less than 12 months after a previous request made to that member in respect of a similar class of documents.
If the company satisfies all of this, it can communicate via a website with any members who consent or who fail to respond within 28 days starting with the date on which the request is sent.
If a member says he does not want to be communicated with via a website, the company must wait 12 months before it asks the member again for consent in relation to the specific documents for which consent was originally sought.
Other rules for communication via a website
Once the necessary consents have been obtained (from all or some of the members) the company must also ensure the following:
A document or information on a website must be made available in a form, and by a means, that the company reasonably considers will enable the recipient to read it and retain a copy of it. So, the company must use an electronic form that is in common usage; an electronic form at the cutting edge of technology may not enable most recipients to read and retain a copy.
The company must notify the intended recipient of the presence of a document or information on a website, the address of the website, the place on the website where it may be accessed and how to access the document or information. Unless the member has also consented to being contacted by electronic means, this means that this information must be provided in hard copy form (eg by letter).
The company must make the document or information available on the website throughout the period specified by any applicable provision of the Companies Acts or, if no such period is specified, the period of 28 days beginning with the date on which the notification that the document is available on the website is sent to the person in question.
Power to request hard copy form
If the member so requests, the company must provide a hard copy form of any document sent by electronic means or made available on a website, within 21 days of receipt of the request and for no charge. If the company fails to comply with this, the company and every officer in default commits an offence and is liable to a fine and a daily fine while the contravention continues.
- These new provisions could provide a substantial cost saving where there are a large number of members, particularly if there are many documents to be circulated. They could also prevent there being delays in the passing of resolutions or the valid receipt of documents where there are overseas members or directors.
- As email has become such a part of normal life, no doubt this will become one of the major methods of e-communication adopted under these new provisions.
- However, it should also be remembered that the use of e-communications requires the consent of the member, which may be withdrawn at any time.
- If a website is to be used, there are also extra hurdles to jump. If the company’s articles do not contain any such provision, the members must agree by resolution that the company may communicate in this way, and then each member must be asked to consent individually. If they do not reply to the request for individual consent, the member is deemed to have consented after 28 days have passed. So, for a company to use a website, they must ensure that they seek consent at least 28 days prior to them wanting to use the website as a means of communication.
- Companies will also have to time their requests for consent to communicate via a website very carefully. A member may only be approached to give consent once in any 12-month period, and the request must contain the required wording in the Act in order to be valid.
- Finally, the member must also be notified that the document has been posted on the website, and this extra step could mean that any cost savings of using a website disappear, especially if members have consented to communication via the website but not via email. In this case, the notification that the document is available will have to be sent by post. If the document being notified is a one page notice of a meeting, there is no cost saving if a letter has to be sent to the members saying that it is available on the website.
Underlying all of this is the power for any member who has consented to
e-communication at any time to require the company to provide the communication
in hard copy format, free of charge. So, even if a member is deemed to have
agreed to web communication, he can simply request a paper copy when he receives
the notification of publication.
It is also likely that some members will consent to e-communication and some won't, leading to the company having to operate both e-communication and hard copy communication mechanisms, with the added complications and expense of keep track of two separate communication systems.
So, for some companies, the use of e-communication may prove to be more complex and expensive than using hard copy communication methods.
This is merely our interpretation of The Electronic Communication Provisions of the Companies Act 2006, the following link will provide full details of the Act: www.opsi.gov.uk/SI/si2006/20063428.htm