Guidance

Company and Partnership law

Explains consulting on & implementing the Companies Act 2006. Memorandum & articles of association & Limited Liability Partnerships guidance

Overview

The phased implementation of Companies Act 2006, completed in October 2009, represents a comprehensive review and modernisation of the UK company law framework. The Act introduced a number of significant changes to simplify and improve company law - making it easier to understand and more flexible - and delivering estimated benefits to business of up to £400m per annum. The objectives of the Act were to enhance shareholder engagement and long term investment; make it easier to set up and run a company, and reduce the burden of regulation - especially for small business. More details of the Act and related documents are available on the Companies Act 2006 page.

Interim announcement for company law Red Tape Challenge

The ‘company and commercial law’ theme was in the spotlight on the Red Tape Challenge website during 2012. The theme highlighted 120 regulations and asked for views on whether to scrap, simplify or improve them. We received over 300 responses to the Red Tape Challenge that covered a number of issues.

On 27 February 2013 Jo Swinson, Business Minister, announced the interim results for the company and commercial law theme, dealing with 115 of the regulations. 37 will be scrapped and 20 will be simplified or improved. The announcement also launched two consultations:

Other measures included in the outcomes of this theme include:

  • improving information and guidance to companies and company directors
  • updating the guidance on model articles, implementing the changes to company charges
  • changes to the narrative reporting regime

A further announcement later this year will cover the remaining regulations which deal with sending information to the registrar of companies.

New draft regulations - part 25 of Companies Act

Following a full consultation on reforming the UK system for registering company charges, the government has developed draft regulations with a view amending Part 25 of the Companies Act 2006. These regulations are due to be laid before Parliament shortly, they are available for information and final review.

Evaluation of the Companies Act 2006

BIS has now undertaken a post-implementation evaluation of the main provisions of the 2006 Act. The results of this evaluation work are available on the Companies Act Evaluation page. The evaluation results show a broad welcome for the reforms introduced by the Act, including those which are enabling a reduction in the regulatory burdens for companies.

The government does not believe there is a need for further significant reform of the company law framework underpinned by the Act. We are aware of a number of minor and technical corrections needed to the Act and a number of issues, brought to our attention by stakeholders, where further changes may be warranted. These issues are currently under consideration and will be addressed as appropriate, subject to the availability of suitable legislation.

Our priority is to focus on those areas which have the potential to further simplify the business environment and deliver reductions in regulatory burdens for business.

Specifically:

  • proposals to modernise and simplify the current system for the registration of charges created by companies and limited liability partnerships - This consultation, which ran between March and June 2010, set out proposals to revise the current scheme for the registration of company charges under the Companies Act 2006, based on the 2001 recommendations of the Company Law Review and the subsequent advice of the Law Commission. A summary of responses and the government response have now been published and are available on the consultation page
  • a review of whether a new corporate form for single person businesses could reduce costs for small entrepreneurs. At present there are hundreds of thousands of limited companies that are owned and run by a single person, and that person has to comply with extensive rules designed to balance the interests of multiple shareholders and directors
  • a range of options to simplify accounting and audit requirements, especially for small and medium enterprises

More broadly the department has recently consulted on issues relating to corporate narrative reporting and will take forward work in this area as part of its wider review into corporate governance and economic short-termism. These consultations can be viewed on the consultation page.

Previous consultations on amendments to the Companies Act 2006

Under the previous administration, the department completed three consultations in early 2010 covering issues that have arisen with the practical implementation of the Companies Act. A summary of the responses received was published in each case. The government’s position on each of these consultations is set out on the following pages:

Financial information required in Companies Act 2006 - Statements of Capital
Objecting to a Registered Office Address
Notices of Auditors Leaving Office - Simplification for Companies and Auditors

Other consultations

Directive amending the third and sixth company law directives

Annual returns: update March 2011

The department intends to revise the requirements for annual returns in two ways:

  • a company which was covered by the disclosure requirements under the FSA’s Disclosure and Transparency Rules throughout the return period will no longer be required to provide any information about its shareholders and their shareholdings in its Annual Return
  • the classification scheme provided for principal business activities is the 2007 Standard Industrial Classification code.

Draft regulations, together with an explanatory memorandum, are available below. It is intended to make these Regulations so that they come into force for Annual Returns made up to dates on or after 1 October 2011.

We had previously considered making changes to the requirements in the statement of capital in the annual return as part of these regulations, in advance of planned changes to statements of capital required in a variety of instances when a company changes its capital structure. However, a further assessment has shown that, in order to reduce burdens and complexity for companies in a way which is cost effective for Companies House and for businesses providing web-filling and software filing services, changes to requirements in statements of capital should be made simultaneously, and apply across the board to all instances in which such statements are required. The government therefore intends to make such changes – simplifying requirements in all statements of capital, including in the annual return – when a suitable legislative vehicle is available.

If you require further information concerning company law which is not available on this website please contact us using the following email address clgenquiries@bis.gsi.gov.uk

Companies Act 2006

The Companies Act 2006, which received Royal Assent on 8 November 2006, is available from:

Implementation of Companies Act 2006

Implementation of the Companies Act 2006 was completed on 1 October 2009. Details of statutory instruments (SIs) made as part of implementation of the Act, including links to the SIs and Explanatory Memoranda on the OPSI website, are available on the Regulations and Commencement Orders page.

Please also see the FAQ Companies Act 2006 page.

The final implementation timetable can be found at:

Evaluation of Companies Act 2006

The purpose of this work was to evaluate the main outcomes of the Act and the consequences of the regulatory changes for companies, shareholders and other stakeholders. Further information is available on the Companies Act Evaluation page.

Memorandum & articles of association

Guidance on the memorandum and articles of association under the Companies Act 2006 can be found here:

Companies Act 2006 final implementation - changes to constitutional documents, including model articles: a summary of what the new approach means (PDF, 178KB)

The prescribed form of the new memorandum can be found in the Statutory Instrument which is on OPSI site: Statutory Instrument 2008 No 3014 - The Companies (Registration) Regulations 2008

It is also available as a PDF: Statutory Instrument 2008 no 3014 - The Companies (Registration) Regulations 2008 PDF

Further guidance on incorporating a company can be found on the Companies House Website: Chapter 1 of Companies House’s guidance on Incorporation and Names

Company Law review

You can find historical documents on the National Archives website

Regulations and commencement orders

You can find a list of Statutory Instruments (SI) on the National Archives website

Europe

The UK supports EU action in the area of company law if it is focused on cross-border issues and aims to achieve objectives that could not be reached with action at national level alone. EU action should be based on clear economic objectives, should reflect market needs and should resort to legislation only when all other alternatives have been fully considered.

BIS take the lead on negotiations in Europe on company law and governance. Negotiating positions as based on the UK approaches as outlined above and the views of all stakeholders. We encourage UK stakeholders to actively engage in shaping the EU agenda by responding to consultations both at EU and national level.

More information on the EU agenda can be found on the EU Commission website.

European Governance Forum
EU Legislation

EC consultation on the cross-border transfers of registered offices of companies

In its 2012 Action Plan on European company law and corporate governance, the European Commission announced further investigation of the need for and feasibility of a directive on the cross-border transfers of registered offices.

The purpose of this consultation is to get more in-depth information on the costs faced by companies transferring their registered offices abroad and on any possible benefits that could be brought by EU action in this area. The Commission will take responses into account when assessing the need for and impact of a possible new instrument.

View and respond to the consultation: European Commission consultation on the cross-border transfers of registered offices of companies

Please copy all responses to Sophie Young in BIS’s Business Environment team: email: sophie.young@bis.gsi.gov.uk tel: 020 7215 2161

Evaluation of Companies Act 2006

BIS has recently undertaken a project to evaluate the main provisions of Companies Act 2006. The purpose of the project was to evaluate the main outcomes of the Act and the consequences of the regulatory changes for companies, shareholders and other stakeholders.

Due to the scale of the Act, the evaluation did not cover all its provisions. Rather, provisions for evaluation were selected on the following criteria:

  1. provisions that were estimated in the Regulatory Impact Assessment to bring the biggest costs or savings
  2. provisions that proved most contentious at the time of Parliamentary passage
  3. provisions that have been highlighted by business as being of particular interest/importance.

The provisions evaluated included the business review, electronic communications, directors’ duties, annual general meetings, and directors’ addresses.

The core of this project was a survey conducted by ORC International on behalf of the department of a random sample of 1000 companies of all sizes, supported by a series of company case studies, and interviews with several stakeholders such as business representative groups. The department also conducted analysis of other evidence, including data from Companies House.

A summary table, showing the main findings of the ORC report and other sources of evidence is at Evaluation of Companies Act 2006: summary Table (PDF, 66 Kb)

Summary of Companies Act 2006 evaluation report

The ORC International evaluation report presents the first primary research amongst companies and stakeholders into the awareness and impacts of the Companies Act 2006. It provides a number of positive findings in relation to levels of awareness of the key changes implemented and higher than anticipated adoption levels for some measures such as limited liability agreements and solvency statements.

  • Overall, the report finds that 85% of companies are aware of changes brought in by the 2006 Act and even amongst small companies, where awareness was anticipated to be lower because of their reliance on advisers, 40% of companies know that changes have been made. Although the report makes clear that is probably too soon to say categorically that the Act’s objectives have been met it notes positive progress in terms of the three objectives evaluated
  • The report finds that on the whole the changes are not seen as overly burdensome by companies and in particular key deregulatory measures such as the removal of the requirement for private companies to hold Annual General Meetings and the greater use of written resolutions have been particularly welcomed by companies and stakeholders, and seen as increasing flexibility
  • The report recognises that the Act was enabling in nature and that awareness and adoption levels are likely to rise over time as familiarisation with the new Act increases and the flow of new companies formed under the Act, with many of the new flexibilities such as the new model articles already in place, grows
  • Although it is disappointing that respondents to the company survey were unable in many cases to quantify savings from the various changes introduced by the Act, the report makes clear that it is still quite early after final implementation
  • Furthermore, adoption levels are generally in line with those expected at the time of the RIA and evidence from other sources suggests that significant savings have been achieved by companies in areas such as electronic communications and financial assistance
  • It is clear from the report that stakeholders and those companies with a better understanding of company law had a greater recognition of the deregulatory benefits that the Act had brought about. Stakeholders in particular noted a number of positives resulting from the Act including:
    • a reduction in bureaucracy
    • greater privacy for directors and shareholders
    • greater clarity on directors’ duties
    • greater engagement with shareholders.
  • The report also highlights the importance of advisers and sources of information in influencing companies’ behaviour. Those companies whose main source of information was advisers (usually accountants or solicitors), their own professional institute, or BIS/Companies House publications were more likely to implement changes. Companies House information and website were positively rated. There do however remain issues about how best to communicate with the smallest companies who might prefer more direct and tailored communications.

The report identifies a number of areas where survey respondents and stakeholders suggested that further improvements could be made. The suggestion that greater clarity is needed on narrative reporting in the Business Review is timely: the department has recently consulted on issues relating to corporate narrative reporting and will take forward its thinking in this area as part of its wider review into corporate governance and economic short-termism. The narrative reporting consultation is now closed - the paper can be found on the consultation page.

A number of the suggested areas for improvement concern the nature of guidance on changes in the Act. The department and Companies House periodically review guidance to ensure that it remains fit for purpose, and this feedback is therefore useful in this context. The government has taken the other suggestions on board, but does not consider further reforms in these areas to be a current priority.

BIS has developed the following guidance notes to help those setting up a business or social enterprise to decide which legal form may be most appropriate for them, and to considering whether a mutual ownership model may be suitable.

Partnership and LLP Law

The basic structure of partnership law was set out in the Partnership Act 1890, and limited partnerships were introduced by the Limited Partnerships Act 1907. More recently, the Limited Liability Partnerships Act 2000 created a new form of Limited Liability Partnership (LLP). The rules applying to LLPs have since been extensively updated by two Statutory Instruments in 2008 and 2009 applying to them appropriate parts of the Companies Act 2006, with adaptations.

The government has also introduced amendments to the law on limited partnerships, based on recommendations made in a joint report by the Law Commission and Scottish Law Commission. These were introduced by a Legislative Reform Order that came into force on 1 October 2009. In presenting that Order, the Department announced that it would be working on further amendments as part of a programme of modernising limited partnership law. We have now decided not to take forward further amendments of limited partnership law at this stage.

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