Contents The Companies Act 2006

Charity & Education News Spring 2007

The Companies Act 2006 (the “Act”),

together with secondary legislation

implementing an EC directive relating to

the information which a company needs to

display on electronic communications,

websites and some of its other

documentation, has recently been passed

into law in England and Wales.

This is relevant to all charities and other

not-for-profit organisations established as

companies limited by guarantee.

Reference below to a "director" could also

mean a trustee, governor or member of a

council of a charitable company.

The Act is 1300 clauses long and repeals

and restates much of the previous

company legislation. Many of the changes

are not yet in force, as, given its size and

complexity, it is being implemented in

stages. It is expected that the entire Act

will be in force by October 2008.

1–3 The Companies Act 2006

3 Spotlight

4 “Can You Speculate to

Accumulate” - Loans to Trading

Companies

5 Compulsory Retirement at 65 -

Legal or Not?

5 Digest - Stone King News

6 Conference Dates

Making use of Electronic

Communications

Many of the provisions which were

brought into effect in January centred

around electronic communications, for

instance:

� Notice for general meetings can now be

given in hard copy form, electronic form

or by means of a website (although in

this case members must be notified that

the notice is on the website);

“This is relevant to all charities and other not-for-profit

organisations established as companies limited by guarantee”

� Companies may state an electronic

address on a notice of a general meeting

to which electronic communications

concerning the meeting (e.g. proxy

forms) may be sent; and

� Companies must now, by law, state their

registered name, place of registration

(England and Wales), company

registration number, registered office

and the fact that they are a company

limited by guarantee (if that is the case)

on any order forms they use and on their

websites as well as on all business

correspondence.

the lantern

�

The Companies Act 2006 (continued)

Other notable changes, which will come

into force later are:

Company Meetings

� No requirement to hold an AGM unless it

is expressly stated in the Articles;

� Only 90% of members needed to agree

to hold a general meeting at short

notice;

� Members of a company limited by

guarantee will have a statutory right to

appoint a proxy to attend and vote at a

meeting on their behalf. A statement

referring to this right must be included

on all notices for members meetings;

� No longer a requirement to lay company

accounts and reports before a general

meeting (it has not been decided

whether or not provisions relating to the

laying of accounts and reports contained

within existing Articles will continue to

apply); and

� All general meetings will only require a

notice period of 14 days, even if a special

resolution is being proposed (it has not

been decided whether or not provisions

relating to notice periods contained

within existing Articles will continue to

apply).

Written Resolutions

� Written ordinary resolutions will only

require a simple majority of members to

pass them (50%+1), with written special

resolutions only requiring a 75%

majority.

� However written resolutions must now

be signed within a 28 day period to be

valid.

Company Secretaries

� A company will no longer be required to

appoint a company secretary (although it

is likely that a requirement in a

company's articles that a company

secretary has to be appointed will still

be effective);

� In light of the fact that there will no

longer be a requirement to have a

company secretary, deeds will now be

able to be validly executed by:

- a director and a witness;

- two authorised signatories (either two

directors, or a director and a company

secretary if a company still has one and

is a private company); or

- company seal, with the usual witnesses.

Accounts

� An auditor will be deemed to be

reappointed annually unless the

company decides otherwise (again it has

not been decided whether or not

provisions in the existing Articles

governing this, will continue to apply);

and

� The deadline for filing accounts is

reduced to 9 months.

Where charitable companies have

restrictions in their Memorandum and

Articles of Association (“M&A”) preventing

them taking advantage of many of these

provisions, it will be open to them to

change their M&A, and in the majority of

cases Charity Commission consent will not

be required.

Directors

� The Act lists a number of directors’

duties. Whilst this largely codifies

existing case law, there is now a duty to

promote the success of the company for

the benefit of its members. In doing

this the directors must consider the

following issues:

- the likely consequences of any decision

in the long term;

- the interests of the company's

employees;

- the need to foster the company's

business relationships with suppliers,

customers and others;

- the impact of the company's operations

on the community and the environment;

- the desirability of the company

maintaining a reputation for high

standards of business conduct; and

- the need to act fairly as between

members of the company.

“As is often now the case within primary legislation, the Minister

for the Cabinet Office must review the operation of the Act

within five years of its passing”

�

“Charities should read this as a duty to act in a way which is

most likely to promote the success of the company to achieve

its objects and purposes. ”

Spotlight

RNLI

However this is modified for charitable and

other companies, which are established for

purposes other than the benefit of their

members. Charities should read this as a

duty to act in a way which is most likely to

promote the success of the company to

achieve its objects and purposes.

Trustees who are directors of both a

charitable company and any associated

trading company should be aware of these

two versions of the same duty and take

care to ensure they apply the correct

criteria depending on the circumstances.

What major charity, registered in

England, provides an important public

service in four different legislative

regimes?

The answer to this question might just

have been given away by the heading to

this piece! RNLI is of course one of

our most high profile and well-loved

institutions. It provides a 24-hour

lifesaving service around the UK and

the Republic of Ireland.

Because the work of the RNLI

naturally crosses frontiers, it needs to

work within the legal framework of

England and Wales, Scotland, Northern

Ireland and the Republic of Ireland (not

to mention the Isle of Man). As a

result the RNLI has established a

panel of lawyers (pictured) in these

jurisdictions. The lawyers, including

Jonathan Burchfield of Stone King, met

last Autumn in order to discuss the

implications for RNLI of the new

charities legislation which is being

introduced across the United Kingdom

and the Republic of Ireland. After a

busy morning’s work, they were then

allowed the privilege of a trip in a

lifeboat from Poole along the coast to

Swanage.

RNLI depends upon voluntary income

and legacies from its supporters – they

have calculated that six out of ten RNLI

launches are only possible thanks to

gifts in wills.

To learn more visit www.rnli.org.uk

or contact John Marshall on

01202 663032.

Jonathan Burchfield – second from left

“It provides a 24-hour lifesaving service aroundthe UK and the Republic of Ireland.”

� Directors will no longer be required to

enter their residential address on the

register of directors held at Companies

House.

Memorandum and Articles of

Association

� Companies will not need to amend their

Articles of Association following changes

of name; and

� New companies will be established with

a new short form Memorandum of

Association. Provisions contained within

the Memoranda of existing companies

will be deemed to be part of their

Articles.

We will keep you informed of the major

changes as they come in.

Martha Burnige (Charity & Education

Team) and Tamsin Wilkinson (Corporate

and Commercial Team)

It is now very common for charities to

have wholly owned subsidiary trading

companies through which they can carry

out non charitable fundraising activity.

Any profits made by the trading company

can then be donated gross to the charity

via Gift Aid so that no corporation tax is

payable on those profits.

We recently advised a client who wished

to set up a trading company for the

purposes of staging a large fundraising

event for which there would be a lot of

“up front” costs. The charity was

proposing to make a loan to the trading

subsidiary to allow it to stage the event

and for the loan to be paid back after the

event.

We advised the charity to check that the

trustees had the power to invest

charitable funds, which they did. The

next step was to determine on what

terms the money should be loaned.

Her Majesty’s Revenue and Customs

(HMRC) must be satisfied that the loan is

a “qualifying loan” otherwise the charity

could lose some of its tax exemptions.

To qualify for tax relief, an investment

must be for charitable purposes and not

for the avoidance of tax. It must also be

on commercial terms.

We spoke to a representative of HMRC

who confirmed that the following criteria

must be met for a loan to be considered

to be a qualifying loan:-

1.A formal loan agreement must be in

place before the loan is made;

2.A commercial rate of interest must be

charged and actually paid;

3.There must be a fixed capital repayment

schedule which requires the repayment

of the capital over a reasonable period of

time;

4.Security for the loan must be given; and

5.The decision by the charity’s trustees to

make the loan should be carefully

recorded in writing.

Once the trustees had agreed the terms

of the loan and were happy that it

represented a good investment for the

charity, we drew up an agreement and

repayment schedule, the loan was made

and the trading company was able to

start organising the fundraising event.

This is not a difficult process, but one

“Can You Speculate to Accumulate?”Loans to Trading Companies

that should be carefully followed when a

charity considers loaning money to its

trading company.

Points to note when making a loan to a

trading company

� Check power to invest

� Ensure that it is a sound investment for

the charity

� Draw up a loan agreement and

repayment schedule

� Keep records of decisions made and

professional advice taken

Martha Burnige

(Charity & Education Team)

“Any profits made by the trading company can then be donatedgross to the charity via Gift Aid so that no corporation tax ispayable on those profits”

New Cambridge Office

Stone King is pleased to announce that

on 1st March we opened an office at

Wellington House, East Road, Cambridge

CB1 1BM.

Seminars/Workshops/Conferences

As you will see from our conference list,

Stone King is involved in a large number

of events in the months to come. Our

first seminar on the new Charities Act is

now fully booked but we will be running

it again on 17th April. Those who have

already expressed an interest will be

contacted. However please let Avia

Johnson know or check our website for

further details if you would like to attend.

Lifting the Veil on a Difficult Issue

– High Court Win

Mike Brotherton of Stone King LLP

recently advised a school defending its

right to enforce a standard dress code.

The High Court supported the decision of

the school not to allow a female pupil to

wear the niqab or face veil (for a fuller

report see our website).

Those who attended our Age

Discrimination workshops at the end of

last year, will remember that some legal

doubt existed as to whether the UK was

in breach of European Law by allowing a

compulsory retirement age of 65.

The membership organisation for people

in or nearing retirement, Heyday, has

made a reference to the European Court

of Justice (ECJ) questioning the validity

of the UK Age Discrimination

Regulations which allow compulsory

retirement at 65 subject to an employer

following the notification procedure. The

UK Government has not objected to the

reference so it is hoped that a

reasonably early decision will be made.

The Advocate General's Opinion to the

ECJ in another case may be an indicator

of the likely outcome. This case

concerns age discrimination in Spain.

The Advocate General has recommended

to the ECJ that it should find no breach

of the European Directive on age

because the Directive does not apply to a

law regulating retirement ages. In the

alternative, he has recommended that

even if it does apply, setting a retirement

age is justified direct age discrimination.

Of particular interest is that the

Advocate General's Opinion relied

heavily on the introduction to the

Directive which indicated that the

Directive is without prejudice to national

provisions setting out retirement ages.

Whilst the ECJ is not obliged to follow

the Opinion of the Advocate General, his

Opinion is acted upon in the majority of

cases.

Clearly if the ECJ follows the Advocate

General's Opinion it is likely to be of

Compulsory Retirement at 65 - Legal or Not?

significant relevance to Heyday's

application.

On the other hand, if Heyday's

application succeeds then one area of

certainty for employers will be removed,

namely the ability, subject to use of the

notification procedure, to compulsorily

retire an individual at age 65.

For further information on the subject

please contact Nick Watson, Head of the

Employment Team on 01225 324435 or

email NickWatson@stoneking.co.uk.

Digest – Stone King News

“ if Heyday's application succeeds then one area of certaintyfor employers will be removed, namely the ability, subject touse of the notification procedure, to compulsorily retire anindividual at age 65. ”

Stone King LLP

13 Queen Square Bath BA1 2HJTel. 01225 337599Fax. 01225 335437

28 Ely Place London EC1N 6TDTel. 020 7796 1007Fax. 020 7796 1017

Wellington House, East Road,Cambridge CB1 1BHTel. 01223 451070Fax. 01223 451100

The Lantern deals with some current legal topics. It should not be usedas an alternative to specific legal advice on the individual circumstancesof a particular problem.

© Stone King LLP 2007

email: charity@stoneking.co.uk

www.stoneking.co.uk Stone King LLP - registered limited liability partnership no OC315280, registered office 13 Queen Square, Bath BA1 2HJ

Your ContactsCharity:Michael King PartnerRobert Meakin PartnerAnn Phillips PartnerJonathan Burchfield PartnerStephen Ravenscroft PartnerAlexandra Whittaker SolicitorVladka Thwaites SolicitorMartha Burnige SolicitorMatthew Waters Solicitor

Education:Richard Gold PartnerMichael Brotherton SolicitorJane Graham SolicitorNaseem Nabi Solicitor

Legacy Disputes:Nick Watson PartnerRobert Meakin PartnerPaul Sutton Associate

Dispute Resolution:Nick Watson PartnerPaul Sutton AssociateMichael Brotherton Solicitor

Commercial Property:Hugh Pearce PartnerStephanie Howarth Senior AssociateCatherine Sanderson AssociateSally McFadden AssociateDonna Del-Greco SolicitorJoanne Sturges SolicitorKathrine Wardle ParalegalAmandeep Basi Paralegal

Corporate & Commercial:Roy Butler PartnerLynne Rigg SolicitorEmployment:Nick Watson PartnerPeter Woodhouse PartnerNaseem Nabi SolicitorChild Protection:Steven Greenwood PartnerHousing:Geraldine Winkler Legal ExecutiveJess Anstey SolicitorTrust and Taxation:Andrew Mortimer PartnerAlison Allen PartnerCharles Hayward Partner

Conference DatesStone King is often involved in producing seminars andconferences. The following are currently being planned.

Please contact Annette Kirby on 01225 324 413 or e-mail

ak@stoneking.co.uk for further information where contact

not already specified.

20 MarCharity Workshop in association withChantrey Vellacott – second in a series:"Trustees Responsibilities – What YouNeed to Know". Venue: Royal Society ofMedicine, Chandos House, 2 Queen AnnStreet, London W1G 9LQ

22 MarSeminar - Charities Act 2006: "Using theNew Act". Venue: 30 Ely Place, LondonEC1N 6TD. For further details contactAvia Johnson on 020 7796 1007

27 MarEmployment Law Workshop – RecentDevelopments. Venue: Offices of StoneKing LLP, 13 Queen Square, Bath BA1 2HJ

29 MarEmployment Law Workshop – RecentDevelopments. Venue: Offices of StoneKing LLP, 28 Ely Place, London EC1N 6TD

29 MarCharity Workshop: Charities Act 2006.Venue: Wellington House, East Road,Cambridge CB1 1BH. For further detailscontact Paula Urban on 020 7796 1007

17 AprSeminar: Charities Act 2006: "Using theNew Act". Venue: 30 Ely Place, LondonEC1N 6TD. For further details contactAvia Johnson on 020 7796 1007

19 AprCharity Workshop: "Planning for FinancialStability". Venue offices of Stone KingLLP, 28 Ely Place, London EC1N 6TD. Forfurther details contact Paula Urban on020 7796 1007

24 AprEmployment Law Workshop: FamilyFriendly Employment – What you shouldknow. Venue: Offices of Stone King LLP,13 Queen Square, Bath BA1 2HJ

26 AprEmployment Law Workshop: FamilyFriendly Employment – What you shouldknow. Venue: Offices of Stone King LLP,28 Ely Place, London EC1N 6TD

1 MayIndependent Schools Workshop inassociation with Old Mill CharteredAccountants. Venue: Bailbrook House,London Road, Bath BA1 7JD

16 MayCatholic Charity ConferenceVenue: Church House Westminster

16 MayCharity Workshop in association withChantrey Vellacott – third in a series:"Trustees Responsibilities – What YouNeed to Know". Venue: Royal Society ofMedicine, Chandos House, 2 Queen AnnStreet, London W1G 9LQ

24 MayCharity Workshop: "InternationalCharities". Venue offices of Stone KingLLP, 28 Ely Place, London EC1N 6TD. Forfurther details contact Paula Urban on020 7796 1007

29 MayEmployment Law Workshop: EmploymentStatus – Employee, Worker or Self-Employed. Venue: Offices of Stone KingLLP, 13 Queen Square, Bath BA1 2HJ

31 MayEmployment Law Workshop: EmploymentStatus – Employee, Worker or Self-Employed. Venue: Offices of Stone KingLLP, 28 Ely Place, London EC1N 6TD

2007

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