Company Law

For guidance on the UK's withdrawal from the European Union see our dedicated page.

Company law in the UK is mainly set out in the Companies Act 2006 (the 2006 Act). Part 15 (sections 380 to 474) sets out requirements for the preparation, distribution and filing of accounts and reports including the choice of accounting framework. These requirements are supplemented by regulations which contain, for example, the detailed requirements for the form and content of financial statements.  Part 16 sets out the general requirements for accounts to be audited including exemptions for certain companies, rules around the appointment, removal and resignation of auditors and auditors’ liability. 

The 2006 Act is wide ranging and covers almost all of the law applicable to companies. Its requirements are not static and are amended from time to time. This is usually done by means of regulations know as statutory instruments which are subject to a lighter touch legislative process than Acts of Parliament.

Distributable profits

One area of the 2006 Act which is closely related to financial reporting is the law on distributable profits (i.e. what may lawfully be paid out as dividends). These requirements are set out in Part 23 (sections 829 to 853). They are relatively brief but are difficult to apply in the context of modern financial reporting requirements. Extensive guidance on this subject has been developed by the Institute of Chartered Accountants in England and Wales (ICAEW) and the Institute of Chartered Accountants of Scotland (ICAS).  In April 2017, the ICAEW and ICAS jointly issued revised guidance to assist companies in determining whether profits made are realised and can be paid out as dividends.

For further information see the specific distributable profits page.

Directors' remuneration

The 2006 Act and related regulations include requirements for the disclosure of directors’ remuneration. All companies, except those that are small, are required to make certain disclosures about the aggregate remuneration of the directors. Quoted companies are subject to considerably more onerous requirements involving preparation of a directors’ remuneration report including detailed information about each director’s remuneration.

All quoted UK registered companies with more than 250 UK employees must annually publish in their directors' remuneration report and justify the pay difference between chief executives and their staff – known as ‘pay ratios’. Such companies will also need to illustrate the effect of future share price increases on executive pay outcomes to inform shareholders when voting on long-term incentive plans.

In May 2019, the Companies (Directors’ Remuneration Policy and Directors’ Remuneration Report) Regulations 2019 were made. The Regulations, which implement the requirements of the Revised Shareholder Rights Directive (SRD), came into force on 10th June 2019. 

For further information see the specific directors' remuneration page.

Narrative reporting

Increasing attention is being paid to narrative reporting or the ‘front end’ of the annual report. All UK registered companies (except those qualifying as micro entities from 1 January 2016 onwards)  are required to prepare a directors’ report containing certain basic information including – for 'large' com­pan­ies and LLPs – certain dis­clos­ures on energy use and carbon emis­sions.

All companies other than those defined in the Companies Act 2006 as ‘small’ must also prepare a strategic report, setting out a review of the company's operations and a description of the principal risks and uncertainties facing the company. 'Large' companies must also include within their strategic report a section 172 (1) statement, while certain companies must also disclose climate-related financial information.

Quoted companies are subject to additional disclosure requirements in their strategic reports, encompassing broader environmental, social and governance (ESG) matters and a description of the company or group's strategy and its business model. Additional disclosure requirements are also set out by the FCA’s Listing Rules.

Corporate Governance

UK registered companies with either 2,000 or more global employees or a turnover over £200 million globally and a balance sheet over £2 billion globally are required to include a statement as part of their Directors’ Report stating which corporate governance code, if any, has been applied and how.  A company is exempt if it is required to provide a corporate governance statement (such as premium and standard listed companies), it is a community interest company (within the meaning of section 26 of the Companies (Audit, Investigations and Community Enterprise) Act 2004) or if it is a charitable company (within the meaning of section 193 of the Charities Act 2011).  If the company has not applied any corporate governance code for the financial year, the statement of corporate governance arrangements must explain the reasons for that decision, and explain what arrangements for corporate governance were applied for that year.

See our Corporate Governance pages for further information on corporate governance.

For further information see the specific narrative reporting page.

Correction list for hyphenation

These words serve as exceptions. Once entered, they are only hyphenated at the specified hyphenation points. Each word should be on a separate line.