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What Is the Companies Act 2006?

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Last editedJul 20212 min read

The Companies Act 2006 is the piece of legislation that serves as the main source for company law governing the UK. The Companies Act is notable for several reasons, not least the fact that it is the longest act in British parliamentary history, covering over 700 pages and 1,300 sections.

What does the Companies Act 2006 do?

The Companies Act was introduced in 2006 to do the following things:

To simplify administration.
To improve the rights of shareholders.
To update and simplify corporate law.
To transpose EU directives into UK law.
To join the two systems of Great Britain and Northern Ireland.

Generally speaking, the goal of the Companies Act 2006 is to make life easier for business owners. Some of the features of the act include:

An easier incorporation process.
Encouragement of web and electronic-based communication.
Private companies no longer need a company secretary.
Indirect investors gain new rights.
Upgraded company naming rules.
Company directors can opt for a service address instead of their residential address.
Private companies do not have to hold an annual general meeting.

Why is S172 Companies Act important?

S172 Companies Act 2006 is an area where business owners might have particular interest. In Section 172, Companies Act 2006 states that directors must “promote the success of the company,” meaning that they must act in a way that benefits shareholders. However, S172 Companies Act dramatically redefined the range of stakeholders to whom the “success of the company” pertains. It was considered relatively controversial, and requires company directors to consider the following:

The long-term consequences of decisions.
The fostering of relationships with suppliers, vendors, customers, etc.
The business’s impact on the environment and community.
The desire to maintain high standards and a good reputation concerning business conduct.
The need to act fairly concerning all company members.
The interest of employees.

With the addition of section 172, Companies Act introduces new admin to companies as well. In short, they must submit a S172 statement that reflects how their business is meeting the above criteria.

Are there other important parts of the Companies Act 2006?

Other areas of the UK Companies Act that are of particular note include the following, applying either to private or public companies.

New features in the Companies Act 2006 have a specific impact on private companies, for example:

Shareholder written resolutions require a simple majority, not unanimity.
Directors have unlimited authority to allot shares so long as they have only one class of shares.
The company can provide financial assistance to buyers of their own shares.
The company can reduce its share capital without a court order.
The period for filing accounts has been reduced to 9 months from financial year end (previously 10).

Other features of the UK Companies Act only affect public companies, including:

Added requirements for annual reports and accounts (if listed on the main board of the London Stock Exchange), including environmental matters, future development and social issues.
Main board businesses must hold an annual meeting and file accounts within 6 months of the end of the financial year.
Institutions may, in the future, need to disclose how they have voted.
Companies are compelled to have greater transparency in financial reports, i.e., disclosing major acquisitions.

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