Postal Charges - email versus postage
Email is well established as a means of communicating with colleagues and contacts.
It can also offer an efficient, highly measurable and cost-effective alternative to more traditional forms of marketing to customers particularly with the recent hike in postal charges.
A unique selling point of small businesses is their strong personal relationship with their customers and clients. But, as your business grows, maintaining the personal touch becomes more of a challenge. Customers and clients want us to speak to them in as personal a way as possible; email is about reaching out and having that personal touch. Our customers and clients are valuing that more and more these days.
What are the legal Considerations?
Legally a company has been permitted to ‘go paperless’ in its communications with shareholder/members since the year 2000 (Companies Act 1985 (Electronic Communications) Order 2000) and the majority of the larger companies have been doing so to some extent for some time, with varying degrees of success.
Should your company or a clients’ company wish to communicate company matters electronically with shareholders you can’t just email an attachment - there are some legal considerations.
This article details those legalities dependent upon the method of communication and also gives suggestions for setting up an electronic communications strategy.
Non website communication
•Companies Act 2006
Section 333 is the specific section of the Companies Act 2006 that has opened up electronic communications by allowing any document or information that is required by the Companies Act to be sent by a company to its shareholders, and vice versa, to be so electronically rather than in hard copy format - provided certain conditions are met.
The shareholder must have specifically agreed to receive documents electronically whether by fax, text, email, or even placing on disc and sending by more “old fashioned” means - i.e. post. The company cannot assume agreement and if there is any doubt then the document must be sent as hard copy (Part 2 Schedule 5 Companies Act 2006); no deemed or default provisions apply.
No article changes or resolutions are required.
•Companies Act 2006
Sections 9 and 10 Part 4 of Schedule 5 Companies Act 2006 allow the default method of electronic communication to be via ‘making available’ on a website with an ‘opt-in’ for hard copy - providing certain conditions are met. ‘Making available’ means posting on the website and then contacting each shareholder separately to advise of posting.
As with the other forms of electronic communication, the company must send each shareholder a paper letter requesting agreement to receiving all or just certain documents via the website. If the shareholder does not respond within 28 days then they are deemed to have consented - this ‘opt in’ is the difference between the agreement to website use and agreement to other forms of electronic communication. The request must stress that failure to respond means ‘deemed’ consent.
Many articles (including the current ’Model Articles’) are not specific with regard to website communication. Therefore, especially if the ‘deemed agreement’ rules are to be used then it is recommended best practice ‘to seek shareholder approval via an authorising resolution or article change, unless it is absolutely clear that the articles have already been drafted in clear anticipation of the deemed agreement provisions. This will reduce the likelihood of shareholder complaints that the new regime came in with inadequate profile and, particularly where the articles are changed, will be easily apparent to new shareholders.’
Whichever resolution is used it must be filed with Companies House within 15 days of being passed.
Declining the offer
If a shareholder declines the offer, the company has to wait 12 months before it can ask again with reference to the specific documents for which consent is being sought. Therefore the company needs to keep clear records of which shareholders have been sent requests and when, for which documents - consider requesting a general agreement for all documents to be made available on the website.
A shareholder who has agreed to receive documents electronically (including any ‘deemed’ web-based communications) can change his mind at any time. Plus he can ask the company to send a paper copy of any document that has been made available electronically, free of charge, and this the company must do within 21 days. If the company fails to comply, then it and its directors have committed an offence for which each is liable to a penalty of £1,000.
Problems in setting up a strategy
Depending on the circumstances, the process of communication by electronic means should be quick, simple and potentially cost effective especially if web- based. However, invariably, due to inertia or otherwise, not all shareholders will consent; the company will therefore have to operate two mechanisms for keeping track of separate communication systems with the cost and additional time that will entail.
The record keeping could become complex - needing to keep track of who has consented to what; which consents have been revoked; who has asked for what and when and who has requested hard copies.
Even if the shareholder has ‘opted in’ to web-based communication (‘deemed’ or otherwise) he must still be notified of the posting but that notification can only be sent by email if he has specifically agreed; otherwise notification must be by post. There is little cost saving if the document is just a one page notice of a meeting and then a letter has to be sent advising that the notice has been posted on the website - a consideration made even more relevant now that postal charges are increased.
As ever the more shareholders there are the more complex the procedure but for the SME with only a few shareholders the savings will outweigh the original costs.
Consider including consent to electronic communication in a shareholders agreement, making it a requirement of transfer that new shareholders provide the necessary website and electronic communications consents.
Setting up a strategy
1. Check the company articles - if they do not already make provision for electronic communication generally, or, if required, communication via the company’s website specifically or not be drafted wide enough or if not clear, a resolution must be passed
2. Arrange for consent from each shareholder - the company must write to each for their:
• agreement to electronic communication either generally or specifically
• agreement to web-based communication, if being used
• email address plus the physical address at which electronic communications can be sent by hard copy, if to be used
3. Consider sending a ‘tick list’ - enabling shareholders to choose which documents they would prefer to receive electronically and which in hard copy. It need not necessarily be ‘all or nothing’
4. Compile a list of shareholders - detailing method of communication agreed from responses received; maintain list
5. Confirm communication method - by responding by email where one is supplied and by post if not
6. Create specific email addresses - If a company issues a notice of meeting, or sends proxy documents by email and that email includes a reply email address, then the company is deemed to have agreed to receive the documents relating to that meeting at that email address, unless stated otherwise in the documents. Companies should create specific addresses to receive such emails rather than use a general address
7. Decide on strategy - for future invitations to consent to web-based communication, if used. This can be as part of usual shareholder mailings but ‘deemed agreement’ from a non-responder can only be made once every 12 months
8. Post some documents - on the company website and when confirming communication method advise shareholders to log on so that any technical problems can be dealt with sooner rather than later
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