Companies Act 2006[1]
Act of Parliament
Long titleAn Act to reform company law and restate the greater part of the enactments relating to companies; to make other provision relating to companies and other forms of business organisation; to make provision about directors’ disqualification, business names, auditors and actuaries; to amend Part 9 of the Enterprise Act 2002; and for connected purposes
Citation2006 c. 46
Territorial extent England and Wales; Scotland; Northern Ireland
Royal assent8 November 2006
Status: Current legislation
History of passage through Parliament
Text of statute as originally enacted
Revised text of statute as amended

The Companies Act 2006 (c. 46) is an act of the Parliament of the United Kingdom which forms the primary source of UK company law.

The act was brought into force in stages, with the final provision being commenced on 1 October 2009. It largely superseded the Companies Act 1985.

The act provides a comprehensive code of company law for the United Kingdom, and made changes to almost every facet of the law in relation to companies. The key provisions are:

The bill for the act was first introduced to Parliament as "the Company Law Reform Bill" and was intended to make wide-ranging amendments to existing statutes. Lobbying from directors and the legal profession ensured that the bill was changed into a consolidating act, avoiding the need for cross-referencing between numerous statutes.

The reception of the act by the legal professions in the United Kingdom has been lukewarm. Concerns have been expressed that too much detail has been inserted to seek to cover every eventuality.[3][date missing] Whereas a complete overhaul of company law was promised, the Act seems to leave much of the existing structure in place, and to simplify certain aspects only at the margins. It is the single, longest piece of legislation passed by Parliament,[4] totalling 1,300 sections and 16 schedules.[5]


A small portion of the act, including section 43 which transposed the EU Transparency Directive into UK law, came into effect on royal assent in November 2006. The first and second Commencement Orders then brought further provisions into force in January 2007 and April 2007. The implementation timetable for the remainder of the Act was announced in February 2007, by Margaret Hodge, Minister for Industry and the Regions. The third and fourth Commencement Orders brought a further tranche of provisions into force in October 2007, and the fifth, sixth and seventh in April and October 2008. The eighth commencement order, made in November 2008, brought the remainder of the Act into force with effect from October 2009.

The staggered timetable was intended to give companies sufficient time to prepare for the new regime under the act, rather than implementing all 1,300 sections of the act on one day.

Another reason for the staggered implementation is that, despite the act's size, a great many sections provide for subsidiary legislation to be brought in by Secretary of State, which required time to draft.

Implementation of the act was the responsibility of the Department for Business, Innovation and Skills.


Main article: Board of directors

The act replaced and codified the principal common law and equitable duties of directors, but it does not purport to provide an exhaustive statement of their duties, and so it is likely that the common law duties survive in a reduced form. Traditional common law notions of corporate benefit have been swept away, and the new emphasis is on corporate social responsibility. There are seven statutory duties placed on directors which are as follows:

  1. s.171 to act within powers – to abide by the terms of the company's memorandum and articles of association, and decisions made by the shareholders;
  2. s.172 to promote the success of the company – directors must continue to act in a way that benefits the shareholders as a whole, but there is now an additional list of non-exhaustive factors to which the directors must have regard. This was one of the most controversial aspects of the new legislation at the drafting stage. These factors are:
    1. the likely long term consequences of decisions;
    2. the interests of employees;
    3. the need to foster the company's business relationships with suppliers, customers, and others;
    4. the impact on the community and the environment;
    5. the desire to maintain a reputation for high standards of business conduct; and
    6. the need to act fairly as between members.
  3. s.173 to exercise independent judgment – directors must not fetter their discretion to act, other than pursuant to an agreement entered into by the company or in a way authorised by the company's articles
  4. s.174 to exercise reasonable care, skill, and diligence – this must be exercised to the standard expected of
    1. someone with the general knowledge, skill, and experience reasonably expected of a person carrying out the functions of the director (the objective test) and also
    2. the actual knowledge, skill, and experience of that particular director (the subjective test)
  5. s.175 to avoid conflicts of interest – methods for authorising such conflicts by either board or shareholder approval are also to be introduced
  6. s.176 not to accept benefits from third parties – minor gifts which cannot be reasonably regarded as giving a rise to a conflict of interest may be accepted by the director(s), but this must be looked at contextually (s.176(4)).
  7. s.177 to declare an interest in a proposed transaction with the company – there are to be carve outs for matters that are not likely to give rise to a conflict of interest, or of which the directors are already aware. There will be an additional statutory obligations to declare interests in relation to existing transactions.

Although the changes to directors' duties were the most widely publicised (and controversial) feature of the legislation, the Act also affects directors in various other ways:

General provisions

The Act contains various provisions which affect all companies irrespective of their status:

This change was made after intensive lobbying by the accounting profession in the United Kingdom.

Private companies

Main article: Private company limited by shares

One of the more touted aspects of the new legislation was the simplification of the corporate regime for small privately held companies. A number of the changes brought about by the Act apply only to private companies. Significant changes include:

Public and listed companies

Main article: Public limited company

The Act also seeks to promote greater shareholder involvement, and a number of new requirements are introduced for public companies, some of the provisions of which only apply to companies whose shares are listed on the main board of the London Stock Exchange (but, importantly, not to companies whose shares are listed on AIM).


Arrangements and reconstructions

Part 26 (sections 895–901) refers to arrangements and reconstructions to be applied between a company and its creditors or members. The principle which allows for 75% of the creditors or members (by value owed or held) to determine a workable arrangement is sometimes referred to as "creditor democracy".[8]

Strategic reports

The Companies Act 2006 (Strategic Report and Directors’ Report) Regulations 2013 amended the Act with effect from 1 October 2013 and in respect of reporting years ending on or after 30th September 2013, creating a duty for large companies to prepare a "strategic report" which includes "a fair review of the company’s business", and describes "the principal risks and uncertainties" facing it.[9] The Companies, Partnerships and Groups (Accounts and Non-Financial Reporting) Regulations 2016 added a requirement that the strategic report include specified non-financial information, as required by the European Union's Non-financial Reporting Directive (NFRD). The contents of a non-financial information statement must include:

See also


  1. ^ The citation of this Act by this short title is authorised by section 1298 of this Act.
  2. ^ Ministers have suggested that one third of the Act simply restates the Companies Act 1985, one third modifies it, and one third is completely new.
  3. ^ Professor Len Sealy made various criticisms of the Act in the Sweet & Maxwell Company Law Newsletter.
  4. ^ Dattani, Rita. "The Companies Act: the longest piece of legislation ever". ISSN 0140-0460. Retrieved 1 August 2021.
  5. ^ "Companies Act 2006". Archived from the original on 26 August 2010. Retrieved 1 August 2021.
  6. ^ Briefly, if the company concerned has distributable profits, then (a) there will be no distribution if the consideration for the asset exceeds its book value, or (b) if the consideration for the asset is less than the book value of the asset, then there will be a distribution of the amount equivalent to the difference.
  7. ^ ICAEW. "Auditor Liability Limitation". Retrieved 25 May 2008.
  8. ^ Goodger, T. and Stanley, E., News analysis: Scottish Lion - Sting in the tail, Insurance Post, published 11 February 2010, accessed 29 October 2023
  9. ^ UK Legislation, Companies Act 2006 (Strategic Report and Directors’ Report) Regulations 2013, Regulation 3, adding Chapter 4A Strategic Report to the principal Act, accessed 30 December 2022
  10. ^ UK Legislation, Companies, Partnerships and Groups (Accounts and Non-Financial Reporting) Regulations 2016, Regulation 4, adding sections 414CA and 414CB to the principal Act, accessed 30 December 2022