Companies Act 2006

The Companies Act 2006 is the main piece of legislation governing how companies operate in the United Kingdom. It replaced and updated several earlier laws to create a single, comprehensive legal framework for the formation, management and regulation of companies. It is the longest piece of legislation ever passed by the UK Parliament and remains central to company law today.

Whether you are a director, shareholder, company secretary or adviser, understanding the key parts of the Companies Act 2006 is essential to ensure that your company complies with its legal obligations and operates responsibly.

Purpose of the Companies Act 2006

The Companies Act 2006 was designed to modernise company law, make it easier to understand and reduce unnecessary administrative burdens, especially for small businesses. It aimed to simplify company formation, clarify directors’ duties, improve shareholder rights and enhance transparency.

It also reflects the UK government’s intention to create a more business-friendly environment while maintaining a high standard of corporate governance.

Who does the Act apply to?

The Companies Act 2006 applies to all companies registered in England, Wales, Scotland and Northern Ireland. This includes:

• Private limited companies

• Public limited companies (PLCs)

• Companies limited by guarantee

• Unlimited companies

It does not apply to partnerships or sole traders, but many of the principles in the Act influence general business practice and professional standards.

Key features of the Companies Act 2006

Directors’ duties: The Act sets out seven core duties that directors must follow. These include acting within their powers, promoting the success of the company, exercising reasonable care and avoiding conflicts of interest. These duties are legally enforceable, meaning directors can be held accountable if they fail to comply.

Company formation and constitution: The Act made it easier to form a company by streamlining the registration process and introducing model articles of association that can be adopted with minimal amendment.

Shareholder rights: Shareholders gained improved access to information and the right to hold directors accountable through clearer voting procedures and rights to call meetings.

Company records and reporting: The Act requires companies to maintain accurate statutory registers and file annual accounts, a confirmation statement and other key documents with Companies House. It also introduced measures to reduce red tape for small businesses, including audit exemptions where appropriate.

Transparency and disclosure: Public companies in particular must follow strict rules on reporting and disclosure. The Act encourages greater transparency by requiring directors’ reports and other filings to be accessible and understandable.

Company secretaries and auditors: Private companies are no longer required to appoint a company secretary, though they may choose to. Public companies must still have one. The Act also sets out clear guidelines on auditor independence and responsibilities.

Simplifying and modernising company law

The Companies Act 2006 brought several practical improvements. For example, companies can now pass many decisions using written resolutions, avoiding the need for formal meetings in some cases. It also introduced electronic communication with shareholders and regulators, making administration faster and more efficient.

The concept of a company’s “objects” was simplified. Previously, companies had to specify what business activities they could engage in. Under the 2006 Act, a company has unrestricted objects unless otherwise stated in its articles.

These changes made it easier for businesses to adapt and grow without needing constant legal updates to their internal documents.

Impact on small businesses

One of the major goals of the Act was to make company law more accessible for small and medium-sized businesses. By reducing paperwork, clarifying duties and allowing more flexibility in decision-making, the Act has helped many owners run their businesses with greater confidence and efficiency.

Provisions such as simplified filing, audit exemptions and the option to adopt model articles of association have made it easier to incorporate and manage a company without complex legal advice.

Final thoughts

The Companies Act 2006 is the backbone of UK company law. It sets out the legal rules and responsibilities that govern how companies are created, managed and dissolved. By modernising and simplifying earlier laws, it has made it easier for business owners, directors and shareholders to operate within a clear and consistent legal framework.

Understanding the main provisions of the Act is essential for anyone involved in running a company. While much of the day-to-day compliance can be handled by accountants or legal advisers, having a working knowledge of the law helps you stay in control and avoid costly mistakes.