Companies Act 2006: Key Requirements

The Companies Act 2006 is the primary legislation governing companies in the UK. At over 1,300 sections, it is one of the longest Acts of Parliament ever passed. It sets out the rules for forming a company, running it, accounting for its activities and eventually winding it up.

Every director of a UK limited company needs to understand its key requirements. Ignorance is not a defence – directors who breach the Act can face personal liability, fines and disqualification.

Company formation and constitution

Articles of association

Every company must have articles of association – the rules governing how the company is run. If you do not file bespoke articles, the model articles prescribed by the Act apply by default.

The articles cover matters including:

• How directors are appointed and removed
• How decisions are made (board resolutions, shareholder resolutions)
• Share transfer restrictions
• Dividend distribution rules
• Authority to allot shares

Registered office

Every company must have a registered office address in the UK (in England, Wales, Scotland or Northern Ireland, matching where it is registered). This is a public address where official correspondence and legal notices are sent.

Company name

The name must end with “Limited” or “Ltd” (or Welsh equivalents for Welsh companies). It must not be the same as or too similar to an existing registered name, and it must not contain certain sensitive words (such as “Royal”, “British”, “Authority”) without approval.

Directors’ duties

The Act codifies seven directors’ duties (sections 171-177). These apply to every director – executive, non-executive, de facto and shadow directors.

Section 172 in practice

Section 172 requires directors to have regard to:

• The long-term consequences of decisions
• The interests of employees
• The need to foster business relationships with suppliers, customers and others
• The impact on the community and environment
• The desirability of maintaining a reputation for high standards of business conduct
• The need to act fairly between members of the company

Companies qualifying as large or medium-sized must include a section 172 statement in their strategic report, explaining how directors have had regard to these matters.

Accounting requirements

Duty to keep adequate accounting records

Every company must keep accounting records that are sufficient to show and explain the company’s transactions and to disclose the company’s financial position with reasonable accuracy at any time (sections 386-389).

The records must include:

• Day-to-day entries of money received and expended and what for
• A record of the company’s assets and liabilities
• Statements of stock held at the end of each financial year
• Stocktaking statements supporting those stock figures

Records must be kept for at least 6 years from the end of the accounting period (3 years for private companies under the Act, but HMRC requires 6 years for tax purposes – the longer period applies in practice).

For full details on retention periods, see our guide on how long to keep accounting records .

Annual accounts

Every company must prepare annual accounts for each financial year. These must give a true and fair view of the company’s financial position and profit or loss.

The accounts must include:

• A profit and loss account (income statement)
• A balance sheet, signed by a director
• Notes to the accounts
• A directors’ report (unless the company qualifies as small and opts to exclude it)
• A strategic report (medium-sized and large companies)
• An auditor’s report (unless the company is exempt from audit)

Small company exemptions

Many UK companies qualify as small and can take advantage of reduced reporting requirements:

A company qualifies as small if it meets at least two of these three criteria. Small companies can:

• File abridged accounts at Companies House (balance sheet and notes only)
• Claim exemption from audit (if turnover is below £10.2 million and the company is not part of a group)
• Omit the directors’ report and strategic report from filed accounts

Micro-entity exemptions

Even smaller companies (meeting at least two of: turnover not more than £632,000, balance sheet total not more than £316,000, not more than 10 employees) can file micro-entity accounts, which are even simpler.

Filing obligations

Confirmation statement

Every company must file a confirmation statement at Companies House at least once every 12 months. This confirms that the information Companies House holds about the company is up to date, including:

• Registered office address
• Directors and secretary
• People with significant control (PSC register)
• Share capital and shareholders
• SIC codes (nature of business)

The filing fee is £13 (online) or £40 (paper).

Annual accounts

Annual accounts must be filed at Companies House within:

Corporation Tax return

Separately from Companies House, you must file a Corporation Tax return (CT600) with HMRC within 12 months of the end of the accounting period. Corporation Tax itself must be paid within 9 months and 1 day.

Late filing penalties

Companies House imposes automatic penalties for late filing of annual accounts:

If you file late in two consecutive years, the penalties are doubled.

Shareholder rights

The Act provides shareholders with significant rights:

• Right to attend and vote at general meetings
• Right to receive dividends when declared
• Right to appoint and remove directors by ordinary resolution
• Pre-emption rights on new share issues (existing shareholders must be offered new shares in proportion to their existing holdings before they can be offered to others)
• Right to petition for unfair prejudice (section 994) if the company’s affairs are being conducted in a way that unfairly prejudices their interests
• Right to a derivative claim (section 260) to bring proceedings on behalf of the company

People with significant control (PSC)

Every company must keep a PSC register identifying individuals who have significant control over the company. A person has significant control if they:

• Hold more than 25% of the company’s shares
• Hold more than 25% of the voting rights
• Have the right to appoint or remove a majority of the board
• Have the right to exercise or actually exercise significant influence or control

PSC information must be reported to Companies House on the confirmation statement and kept up to date.

Directors’ personal liability

Directors can face personal liability for breaches of the Act:

Directors can be disqualified under the Company Directors Disqualification Act 1986 for periods of 2 to 15 years for misconduct, including allowing a company to trade while insolvent.

Practical compliance for small companies

For most small company directors, the key compliance actions are:

1. File annual accounts at Companies House on time
2. File the confirmation statement annually
3. Keep the PSC register up to date
4. Maintain adequate accounting records
5. File the Corporation Tax return and pay CT on time
6. Act in accordance with your directors’ duties – particularly section 172
7. Notify Companies House of changes to directors, registered office or share capital within the required timeframes