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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.

The Companies (Miscellaneous Reporting) Regulations 2018, make a number of changes to reporting of directors’ remuneration for quoted companies.  Quoted and UK registered companies with more than 250 UK employees to annually publish 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), will come 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 companies (except those qualifying as micro entities from 1 January 2016 onwards)  are required to prepare a directors’ report containing certain basic information. All companies other than those defined in the Companies Act 2006 as ‘small’ must also include a strategic report, setting out a review of the company's operations.  Quoted companies are subject to additional requirements for their strategic reports.

More recently changes have been implemented through The Companies (Miscellaneous Reporting) Regulations 2018 - see below.

The Companies (Miscellaneous Reporting) Regulations 2018

These regulations are part of the Government’s package of corporate governance reforms and are effective for financial years commencing on or after 1 January 2019.  Large companies (within the meaning under the Companies Act 2006) will need to include:

  1. A separately identifiable statement in the Strategic Report describing how the directors have complied with their duty to promote the success of the company having regard to the matters section 172(1)(a) to (f) of the Companies Act 2006.
  2. A statement in the Directors’ Report summarising how the directors have had regard to the need to foster the company’s business relationships with suppliers, customers and others, and the effect of that regard, including on the principal decisions taken by the company during the financial year.

All UK registered companies with more than 250 employees will have to include a statement in the Directors’ Report summarising how their directors have engaged with employees, how they have had regard to employee interests, and the effect of that regard, including on the principal decisions taken by the company during the financial year. This expands on the information about employee engagement matters that companies already have to include in their directors’ report.

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 will be required to include a statement as part of their Directors’ Report stating which corporate governance code, if any, has been applied and how.

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.