Companies Act 2006

The Companies Act 2006[1]

Long title An Act to reform company law and restate the greater part of the enactments relating to companies; to make other provision relating to companies and other forms of business organisation; to make provision about directors’ disqualification, business names, auditors and actuaries; to amend Part 9 of the Enterprise Act 2002; and for connected purposes
Citation 2006 c 46
Territorial extent England and Wales; Scotland; Northern Ireland
Royal assent 8 November 2006
Status: Current legislation
History of passage through Parliament
Text of statute as originally enacted
Revised text of statute as amended

The Companies Act 2006 (c 46) is an Act of the Parliament of the United Kingdom which forms the primary source of UK company law. It had the distinction of being the longest Act in British Parliamentary history: with 1,300 sections and covering nearly 700 pages, and containing 16 schedules (the list of contents is 59 pages long) but it has since been surpassed, in that respect, by the Corporation Tax Act 2009.

The Act was brought into force in stages, with the final provision being commenced on 1 October 2009. It superseded the Companies Act 1985.

The Act provides a comprehensive code of company law for the United Kingdom, and made changes to almost every facet of the law in relation to companies. The key provisions are:

The Bill for the Act was first introduced to Parliament as "the Company Law Reform Bill" and was intended to make wide-ranging amendments to existing statutes. Lobbying from directors and the legal profession ensured that the Bill was changed into a consolidating Act, avoiding the need for cross-referencing between numerous statutes.

The reception of the Act by the legal professions in the United Kingdom has been slightly lukewarm. Concerns have been expressed that too much detail has been inserted to seek to cover every eventuality.[3] Whereas a complete overhaul of company law was promised, the Act seems to leave much of the existing structure in place, and to simplify certain aspects only at the margins. In other areas, it is said to have complicated and obfuscated previously settled law and may make doing business more difficult for those operating small companies.


A small portion of the Act came into effect on Royal Assent in November 2006. The first and second Commencement Orders then brought further provisions into force in January 2007 and April 2007. The implementation timetable for the remainder of the Act was announced in February 2007, by Margaret Hodge, Minister for Industry and the Regions. The third and fourth Commencement Orders brought a further tranche of provisions into force in October 2007, and the fifth, sixth and seventh in April and October 2008. The eighth commencement order, made in November 2008, brought the remainder of the Act into force with effect from October 2009.

The staggered timetable was intended to give companies sufficient time to prepare for the new regime under the Act, rather than implementing all 1,300 sections of the Act on one day.

Another reason for the staggered implementation is that, despite the Act's size, a great many sections provide for subsidiary legislation to be brought in by Secretary of State, which has taken time to draft.

Implementation of the Act is the responsibility of the Department for Business, Innovation and Skills.


Main article: Board of directors

The Act replaced and codified the principal common law and equitable duties of directors, but it does not purport to provide an exhaustive statement of their duties, and so it is likely that the common law duties survive in a reduced form. Traditional common law notions of corporate benefit have been swept away, and the new emphasis is on corporate social responsibility. The seven codified duties are as follows:

  1. S171 to act within their powers - to abide by the terms of the company's memorandum and articles of association and decisions made by the shareholders;
  2. S172 to promote the success of the company - directors must continue to act in a way that benefits the shareholders as a whole, but there is now an additional list of non-exhaustive factors to which the directors must have regard. This was one of the most controversial aspects of the new legislation at the drafting stage. These factors are:
    1. the long term consequences of decisions
    2. the interests of employees
    3. the need to foster the company's business relationships with suppliers, customers and others
    4. the impact on the community and the environment
    5. the desire to maintain a reputation for high standards of business conduct
    6. the need to act fairly as between members
  3. S173 to exercise independent judgment - directors must not fetter their discretion to act, other than pursuant to an agreement entered into by the company or in a way authorised by the company's articles
  4. S174 to exercise reasonable care, skill and diligence - this must be exercised to the standard expected of
    1. someone with the general knowledge, skill and experience reasonably expected of a person carrying out the functions of the director (the objective test) and also
    2. the actual knowledge, skill and experience of that particular director (the subjective test)
  5. S175 to avoid conflicts of interest - methods for authorising such conflicts by either board or shareholder approval are also to be introduced
  6. S176 not to accept benefits from third parties
  7. S177 to declare an interest in a proposed transaction with the company - there are to be carve outs for matters that are not likely to give rise to a conflict of interest, or of which the directors are already aware. There will be an additional statutory obligations to declare interests in relation to existing transactions.

Although the changes to directors' duties were the most widely publicised (and controversial) feature of the legislation, the Act also affects directors in various other ways:

General provisions

The Act contains various provisions which affect all companies irrespective of their status:

This change was made after intensive lobbying by the accounting profession in the United Kingdom.

Private companies

One of the more touted aspects of the new legislation was the simplification of the corporate regime for small privately held companies. A number of the changes brought about by the Act apply only to private companies. Significant changes include:

Public and listed companies

The Act also seeks to promote greater shareholder involvement, and a number of new requirements are introduced for public companies, some of the provisions of which only apply to companies whose shares are listed on the main board of the London Stock Exchange (but, importantly, not to companies whose shares are listed on AIM).

  1. main trends and factors likely to affect future development, performance and position of the business;
  2. information on environmental matters, employees and social issues; and
  3. information on contractual and other arrangements essential to the company's business.
  1. publish their annual report and accounts on their website;
  2. disclose results of polled votes at general meetings on their website;
  3. give certain minority shareholders the right to require independent scrutiny of any polled vote, the results of which must be published on the company's website.


  • Part 1 General introductory provisions, ss 1-6
  • Part 2 Company formation, ss 7-16
  • Part 3 A company's constitution, ss 17-38
  • Part 4 A company's capacity and related matters, ss 39-52
  • Part 5 A company's name, ss 53-85
  • Part 6 A company's registered office, ss 86-88
  • Part 7 Re-registration as a means of altering a company's status, ss 89-111
  • Part 8 A company's members, ss 112-144
  • Part 9 Exercise of members' rights, ss 145-153
  • Part 10 A company's directors, ss 154-259
  • Part 11 Derivative claims and proceedings by members, ss 260-269
  • Part 12 Company secretaries, ss 270-280
  • Part 13 Resolutions and meetings, ss 281-361
  • Part 14 Control of political donations and expenditure, ss 362-379
  • Part 15 Accounts and reports, ss 380-474
  • Part 16 Audit, ss 475-539
  • Part 17 A company's share capital, ss 540-657
  • Part 18 Acquisition by limited company of its own shares, ss 658-737
  • Part 19 Debentures, ss 738-754
  • Part 20 Private and public companies, ss 755-767
  • Part 21 Certification and transfer of securities, ss 768-790
  • Part 22 Information about interests in a company's shares, ss 791-828
  • Part 23 Distributions, 829-853
  • Part 24 A company's annual return, ss 854-859
  • Part 25 Company charges, ss 860-894
  • Part 26 Arrangements and reconstructions, ss 895-901
  • Part 27 Mergers and divisions of public companies, ss 902-941
  • Part 28 Takeovers etc., ss 942-992
  • Part 29 Fraudulent trading, s 993
  • Part 30 Protection of members against unfair prejudice, ss 994-999
  • Part 31 Dissolution and restoration to the register, ss 1000-1035
  • Part 32 Company investigations: amendments, ss 1035-1039
  • Part 33 UK companies not formed under companies legislation, ss 1040-1043
  • Part 34 Overseas companies, ss 1044-1059
  • Part 35 The registrar of companies, ss 1060
  • Part 36 Offences under the Companies Acts, ss 1121-1133
  • Part 37 Companies: supplementary provisions, ss 1134-1157
  • Part 38 Companies: interpretation, ss 1158-1174
  • Part 39 Companies: minor amendments, ss 1175-1181
  • Part 40 Company directors: foreign disqualification etc., ss 1182-1191
  • Part 41 Business names, ss 1192-1208
  • Part 42 Statutory auditors, ss 1209-1264
  • Part 43 Transparency obligations and related matters, ss 1265-1273
  • Part 44 Miscellaneous provisions, ss 1274-1283
  • Part 45 Northern Ireland ss 1284-1287
  • Part 46 General and supplementary provisions, ss 1288-1292
  • Part 47 Final provisions, ss 1298-1300
  • Schedules 1-16

See also


  1. The citation of this Act by this short title is authorised by section 1298 of this Act.
  2. Ministers have suggested that one third of the Act simply restates the Companies Act 1985, one third modifies it, and one third is completely new.
  3. Professor Len Sealy made various criticisms of the Act in the Sweet & Maxwell Company Law Newsletter.
  4. Briefly, if the company concerned has distributable profits, then (a) there will be no distribution if the consideration for the asset exceeds its book value, or (b) if the consideration for the asset is less than the book value of the asset, then there will be a distribution of the amount equivalent to the difference.
  5. ICAEW. "Auditor Liability Limitation". Retrieved 2008-05-25.


External links

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