From 1844 to 2006: An evolution of Companies Acts for Setup UK


While in the process to create company UK, there are certain set of rules for the company that need to be follow. However, a company may not only have to follow those set of rules, there are certain other rules that have to be observed by the company. The default law that every company has to follow is the Companies Act. No company can be registered without following the regulations provided by this act. Hence for companies house register new company, the constitution and memorandum should be devised by the company and submitted for the registration process as mentioned in the Companies Act 2006. The same act provides a source of regulations and conditions for the operation of company in every aspect.  There have been changes in the provisions of Companies Act over years. However, the latest version is Companies Act 2006. This article presents the stages of development of Companies Act 2006.

Development of latest version of Companies Act

An England company register of the present era has to incorporate Companies Act 2006 as a default law while devising its laws. The evolution of current Companies Act took years. From 1844 when the first act was designed to 2006 (the latest version of Companies Act), many changes were brought in companies’ law.

Companies Act 1844 

The oldest version of Companies Act was devised in 1844. Its provisions granted the status of corporate to the companies via the registry of constitutional documents of a company. Joint stock companies, chartered corporations and statutory companies formed under this act were different from one another.

Acts of 1855 and 1856

It was in 1855 that another act was approved. Its main feature was that it gave allowance to the shareholders to keep a limited liability. In 1856, the statute was revised and named as Joint Stock Companies Act 1856. The registration method was introduced in it for the companies along with a limited liability.

Companies Act 1985 and 1989

In 1985, the parliament worked hard to collect all the laws related to companies that were followed by then and proposed via different acts. The collected laws were arranged to form a single Act, that is the Companies Act 1985. However, the resulting act was quite fruitless. It had 747 Sections and 25 Schedules. And therefore, had to be changed after some years. In 1985, The Insolvency Act brought changes in the provisions of Companies Act 1985. The Financial Services Act 1986 also added to the changes. Hence, after some more alterations the result was Companies Act of 1989 which had 216 Sections and 24 Schedules.

Companies Act 2006

1985 and 1989 versions of Companies Act are immediately followed by the latest version of Companies Act, that is the 2006 version. It has 1300 provisions and the schedules are 16. It was implemented by parts in a course of three years. In this course of three years, the Sections of older versions of Companies Act were followed until they were replaced by the Sections of Companies Act 2006. Currently, Companies Act 2006 has introduced new provisions as a replacement to almost all the Sections of former versions of this act. However, parts 14 and 15 of Companies Act 1985 which provide rulings regarding investigations of companies, remain unchanged in Companies Act 2006.

Some Changes Brought in Companies Act 1985 

Being the predecessor of Companies Act 2006, the act has been subjected to changes. Mostly, all the provisions have been subjected to either complete alteration or little amendment. Some of the Sections of Companies Act 1985 have been reassembled and amended in Companies Act 2006. For instance,

Section 2 of Companies Act 2006 provides the definition of Companies Acts. It defines Companies Acts as the Companies Act 2006. However, the subparts of this Section include parts of former acts that are still in force in the definition of Companies Acts.

Whereas,

Section 2 of Companies Act 1985 revolves around a completely different topic. It discusses about the memorandum that is required to be devised by a company for the procedure of registration and has to be submitted to the registrar i.e. companies house register new company. It states the requirements or points that should be mentioned in a memorandum. For instance, it states that a memorandum must include the name, location of registered office and objectives of a company etc.

Parts of 1985 Act still in force

Despite the fact that most of the Sections of Companies Act 1985 have been amended by the latest version, Companies Act 2006 has parts that have not been changed and are stated as they were in 1985 version of the same act. Such parts include Section 14 and 15 of Companies Act 1985.

Section 14

Section 14 of the 1985 version of Companies Act, includes rulings for investigations that may be led by a company. It discusses about how can a company may investigate about any application that has been passed in the company. One or more than one inspectors are appointed, and he investigates the affairs of the company. Further it outlines the scenarios when such an investigation must be made. The same Section mentions the authorities that may be given to an inspector at the time of investigation. It also includes rulings regarding the documentation of evidences that has to be done in the process of investigation.

Section 15

Section of the 1985 Companies Act includes rulings regarding the enforcement of obligations on the shares. The consequences of such an enforcement are mentioned. The penalties for violating the obligations and relaxations in obligations are mentioned in this Section.

Other laws for the Regulation of Companies

A company may not only be governed by Companies Acts. Other than the memorandum and articles of association and Companies Act, there are certain acts that determine the conduct of a company in different fields. For instance, IA 1986 and the Financial Services and Markets Act 2000. Another example is the Sale of Goods Act 1979. However, apart from all these statutes, European law and common law rules also govern the conduct of companies.

The Review of Common Laws

It was March of 1998 when the DTI ordered the review of company law. A group was appointed for this purpose. The group worked independently to devise simple and cost effective methods via which the company law could be brought in to a modern version for the business of 21st century. The finalised report was presented to the secretary of state and it included all the principles which could be followed to bring companies act into conformity with the modern era business. It also included the changes that needed to be made in company laws. The CLR report suggested that changes should be made as such that the law becomes easily accessible and implementable by small scale companies. Moreover, it should not burden the companies unnecessarily. Most of the provisions of Companies Act 2006 are governed by the suggestions given by Company Law Review.

Derivation of Company Law from Case Law

None of the versions of Companies Act has proved sufficient as a complete code. Most of the current company law has been constituted from old case law that emerged in the era of statutory and chartered corporations and deed of settlement companies. Hence, the Companies Acts have always had an assumption about the presence of companies and taken for granted the routine practices of companies. It is also a fact that the old case law effects today’s business despite the fact that the nature of business is quite different in the present era.

Different laws devised as a result to the cases in courts have been derived from Companies Acts. Some of these laws follow exact meanings of provisions of Companies Acts whereas some consider the general idea presented by the Companies Acts. Some decisions taken by the court may have their basis on the interpreted documents that may include the company’s constitution and resolutions of shareholders. These documents are followed as a standard usually and therefore find a grieve importance in company law and for the groups involved in the cases.

Moreover, practical scenarios are more important in determining the regulations than the already devised laws. As someone who just knows about the laws and has no idea about the practical matters of business will be unable to govern the matter perfectly. Hence, the older practices and rules that are based on experiences form a strong basis for the creation of laws.

Influence European Law on Company Law

As UK is a part of EU, there is an influence by the EU on Company Law. The treaty of Rome intends to provide an easy trade and more freedom to the people for setting up their business. For the harmonisation of company laws that are local and belong to the states holding membership of EU, a programme is conducted.  The authorisation of issuing directives is done by this treaty. The harmonisation directives are known as first directive, second directive and likewise. The name depended upon the order in which the directives were presented and all the directives got a joint approval by the council. Thirteen directives have been proposed so far, out of which, the 5th and 10th still need adoption and the 9th has been withdrawn.

European Law Directives:

Actually, a directive is a ruling that has to get enforced in a particular state holding the membership via its legislation. It has no direct impact on the particular companies and hence cannot be termed as an immediate source of law. However, there are certain verdicts given by the English Courts and European as well that advance to this notion. If the directive is enforced domestically, its interpretation must be provided as a help to answer the questions regarding statute. If the directive is not implemented as it is, and only the general idea is taken into consideration while implementation, the verdict must be explained according to the wordings of directives. However, if it changes the main meaning of the legislation, it should not be done.

If a member state is unsuccessful in implementing the directive within the limited time that was given to it for the implementation or has done it, the conditions and regulations of the directive may be followed against the state holding the membership. It may also be used against the public structure or any government agency. For instance, in the case of Karella, the allowance was given to any individual, who intended to term a legislation by the Parliament of Greece as unlawful, to refer to the second directive of EU Company Law.

However, the main agenda of a directive is to define the minimum standards that a member state should follow. Member states can implement laws that go further than the limits provided by the directives.

Formation of EU law via Regulations

The formation of EU law can also be done via regulations. The difference between a directive and a regulation is that a directive does not have a direct impact on the domestic law whereas a regulation impacts the domestic law directly for each member state. However, there may be a requirement of a domestic legislation, in support of a regulation. For instance, it may provide the facilities of administration.

After an England company register, the first thing that has to be done is that the laws are analysed. The article discussed a wide range of regulations that may govern the formation of company law. Hence, for a company setup UK, not only the Companies Acts, but also the acts that are passed generally and focus on any particular matters of business impact the company law.

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