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The Guide to Companies Act Rules for a Company

Gary Green
Gary Green
August 25, 2020

The Companies Act rules 2006 is the underlying source for company rules in the UK. It covers nearly every aspect of how companies should be run, financed and managed.

CA 2006 replaces the 1985 Company Act and its key aims are to:

  • Modernise and simplify UK company corporate law;
  • Codify common company law, particularly in regards to the directors’ duties;
  • Improve shareholders’ rights;
  • Simplify the overall administrative process.

What are some of the key rules in Companies Act 2006?

The Companies Act 1985 was amended and updated to make it a lot easier to incorporate and manage a company, in addition to improving shareholder engagement and generally offer a better environment for investors. It was also updated to ensure improved regulation and provide companies more flexibility for future growth and expansion.

While it may not be possible to discuss the complete range of rules and laws pertaining to Companies Act 2006 in a single article, we can certainly discuss a few key areas to help you get familiar with what it is.

Distributable Profits

One area of CA 2006 closely related to financial reporting – a key responsibility of company directors – is the law on distributable profits – e.g. what you may legally pay out as dividends.

The requirements, as set out in sections 829 and 853 of Part 23, are somewhat difficult to implement in practice in the context of modern financial reporting and requires extensive guidance. However, an accountant with years of experience helping UK companies understand the laws around Company Act can certainly point you in the right direction.

Directors’ Remuneration

All UK companies, except small ones and startups, must disclose the aggregate remuneration of their directors.

UK-incorporated companies with over 250 employees must yearly publish and justify the respective pay differences between their chief executives and general staff members. They must also illustrate how future increases in share price will affect executive pay outcomes.

Narrative Reporting

More attention is now being given to narrative or front end annual reporting. All UK companies, except those falling under the ‘micro entities’ category, must prepare a Directors’ Report which contains all the relevant information.

Companies defined as not ‘small’ by CA 2006 must include a strategic report, giving a review of the company’s business operations.

The companies miscellaneous reporting regulations

UK-incorporated companies having over 250 employees must include a statement in the Directors’ Report, which summarises how the directors engaged with employees, how they regarded employees’ interests, and the effect it had on the employees, as well as the principal decisions taken for that financial year.

UK-incorporated companies deemed ‘large’ according to CA 2006 – i.e. those with 2,000 or more global employees or an annual global turnover of £200 million, and a balance sheet of more than £2 billion globally, must include a statement within the Directors’ Report which states which corporate governance code has been applied and how.

Get Professional Advice today

Understanding the key points and laws around Company Act rules 2006 can be confusing for many company owners, but it doesn’t have to be.
Get in touch with our accountants today to get easy-to-follow guidance on all the laws that apply to your UK company.

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