Speeding up the provision of shareholder information
Scope of electronic communications widened

Companies have been permitted to communicate electronically with their shareholders since 22 December 2000 by virtue of The Companies Act (Electronic Communications) Order 2000. However, these provisions contained various limitations which impeded its practical effect.

With the introduction of The Companies Act 2006 which has seen the scope of electronic communications widened, with the primary intention of delivering significant savings to companies in terms of administration, printing, and postage costs, as well as speeding up the provision of information to shareholders. The reduced use of paper will also have environmental benefits.

The electronic communication provisions of The Companies Act 2006 took effect from 20 January 2007 and allow (but not require) companies to communicate with shareholders via email, website postings and any other 'electronic form' as long as the information or documentation being communicated is in a machine readable form, capable of being read with the naked eye and permits a copy to be retained. This should include communications by facsimile and text message.

The Companies Act 2006 now permits, notices of meetings (and proxy appointments), copies of annual reports and financial summaries and copies of directors'/auditors' reports to be communicated electronically. This also includes a catch-all provision allowing any other information "authorised or required by law to be communicated" to be done electronically. In addition, it is now possible for a company to go a step further and amend their Articles of Association by specifying any additional voluntary information or documentation that may be communicated electronically.

It is likely that shareholders may wish to communicate with the company by electronic means, typically email. They will be permitted to do so provided that the company has expressly agreed to this, either generally (in respect of all communications made from time to time) or specifically (in respect of one particular matter in hand).

If the company does not wish its shareholders to communicate with it by electronic means then it must ensure that it does not inadvertently give consent. It should consider amending its Articles to include provisions prohibiting the use of electronic communications and stating the rules that will apply if the company inadvertently permits electronic communications.

Schedule 5 of The Companies Act 2006 allows companies to send or supply documents and information to its shareholders in electronic form, subject at all times to shareholder approval.

If a company's Articles already permit it to communicate electronically with its members the transitional provisions of the legislation state that the company will be able to continue to do so under The Companies Act 2006. But for those companies now looking to communicate electronically (or who wish to take advantage of the wider scope of the provisions of The Companies Act 2006), companies may now do so provided that:

• it has authority to do so, such authority having been conferred on the company either by ordinary resolution of the shareholders as a body in general meeting or where provision is otherwise included in the company's Articles;
• and thereafter, the individual shareholder for whom the company wishes to communicate electronically separately consents.
  

Before sending any material electronically companies must have the requisite authority to communicate by such means. Authority is granted by:

• passing an ordinary resolution of its members as a whole in a general meeting; or
• amending its Articles to include such authority.
  

Whichever route is chosen is a matter for the directors to consider but of paramount significance is whether the company can expect to achieve the requisite majority to pass the required resolution. Seeking authority of the members in general meeting requires that the resolution is passed by simple majority whereas including such a provision in the company's Articles by their amendment will require a 75 per cent majority in order to carry the motion.

Assuming that the company has the required authority to communicate electronically, it must thereafter seek individual agreement to receive information by electronic means from each intended recipient. The Companies Act 2006 draws an important distinction between electronic communications posted on the company's website and electronic communications made by other electronic means.

A company can only share information or documents with shareholders via a website, where the shareholder has expressly agreed to do so or, if the shareholder fails to respond within 28 days of the company's request. The company may consider the latter as the individual's deemed consent to receive material from the Company through website communications, and the company may thereafter rely on postings on its website in respect of those individuals.

Companies can only communicate with its members by other electronic means, where the shareholder has expressly agreed to this and has provided an appropriate address. The Companies Act 2006 does not include a provision deeming a member to have agreed to communications by email in the same way as it does for the use of websites. Where an individual does not agree or fails to provide an email address the company will need to send the information or documentation in hard copy or post it on the company's website (if that means of consent has been separately obtained by express or deemed agreement).

Notwithstanding that a member may have given (or be deemed to have given) consent to receive material electronically, a member may still request a hard copy and the company must send such document or information in hard copy form, free of charge, within 21 days of receipt of the request from the shareholder. Failure to do so is an offence, punishable by a fine.

Where an individual does not agree to website communications, the company cannot ask again for his or her agreement and look to rely on the 'deemed consent' provisions above within the next 12 month period. This is designed to deter companies from pestering its shareholders for consent within short periods of time. The 12 month prohibition relates only to the 'deemed consent' provisions from the member's failure to respond within 28 days of a request for electronic communications.

The company may still ask permission at any time so long as it does not seek to rely on the deemed consent provisions within 12 months of its previous requisition. In any case, companies should consider the impact on investor relations of making repeated attempts to communicate electronically where those shareholders have otherwise refused.

Assuming that the company has obtained the necessary consents, the company must notify the intended recipient (in hard copy form unless the recipient has consented to e.g. email communications):

1. of the presence of the information on the website;
2. details of the website address;
3. the place on the website where the document or information may be accessed; and
4. how to access the information - e.g. the software requirements necessary to download the information (the company should ensure the recipients have easy and free access.)

The documents or information must be available on the website either for the applicable period specified by The Companies Act 2006 or if no such period is specified, for 28 days from the date of notification sent to the intended recipient.

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