What is the Companies Act 2006?

What is the Companies Act 2006?

The Companies Act 2006

 

The Companies Act 2006 (“the Act”) is one of the UK’s largest pieces of legislation. The Act includes 1,300 sections and 16 schedules. It covers many facets of the running and structure of a company as well as corporate governance.

It can be a confusing piece of legislation to follow at times. So, it’s fair to say it doesn’t make for easy bedtime reading.

Well, unless you’re looking for something to send you to sleep.

But don’t let that put you off.

Once you’ve got your head around how to use the Act and its purpose, it can be a crucial reference tool for you.

The Act allows to easily check up on your rights and responsibilities as an employee or company director.

This article aims to provide an overview of the Act, its contents and key provisions that demonstrate its importance in today’s corporate and commercial sectors.

 

The contents of the Companies Act 2006

 

The Act is one of the longest pieces of legislation ever enacted in the UK. Thus, reading the Companies Act 2006 requires a little navigation.

Fortunately, it sounds more daunting than it is.

The Companies Act 2006 has 47 Parts; the 16 schedules are separate. Most Parts contain several chapters which serve as headings to narrow the scope of the provisions down into relevant sections. This is to enable users to navigate the Act as quickly and as smoothly as possible.

The most used Parts of the Act:

  • set out the requirements for forming a company;
  • regulate the conduct of company directors;
  • make provisions for the disclosure of business accounts, audits and executive remuneration packages and any bonuses and regulate against fraud.

 

 Purpose of the Companies Act 2006

 

The context of the Act demonstrates its importance. The Act came into force in 2006, amending and reinstating much of the Companies Act 1985. The final provisions of the Act came into force in October 2009, after eight years of consultation.

A lot has happened in business since 1985. So the legislation was in dire need of a makeover to appropriately regulate the current sector.

Law primarily reflects the times we live in, or at least it should. The legislation is redundant if it doesn’t do the job it’s designed for.

Thus, the Act updated and modernised much of the original enactments relating to all components of companies, organisations and other forms of business.

2006 was an unforgettable year for global business and not for reasons we’d like to remember. It was the beginning of the Global Financial Crisis (GFC).

Leading up to the GFC, it became apparent that company law and corporate governance regulations needed tightening up – a change that took over four years in the making and came a little too late.

The purpose of company law and corporate governance is to promote enterprise and stimulate investment.

If individuals are better financially protected by the law and there is more accountability for those engaging in foul play, more people are likely to invest. In turn, this encourages businesses to flourish.

The revisions also streamline the company formation process with clearly defined legal parameters and regulations.

 

The importance of the Companies Act 2006 in today’s commercial sector

 

While some of the tricky bits are better left to the lawyers, the Companies Act 2006 is now more reader friendly for non-legal persons and the general public than it’s ever been.

One of the main focuses of the legislatures was to create a statute that operated in favour of a transparent and integral business community.

Traditionally, the mission of any company is to maximise the profit and economic value of shares for holders and members.

Other objectives tend to be ancillary to this.

It is no longer practical or acceptable for businesses to operate with a single minded approach towards business. The Act aims to reflect a more modern business practice, that is, companies are now required to have a greater external awareness as well as internal focus to consider the impact of their conduct on employees, trade unions, and the environment. In many ways, this welcomed change has been a response to the multitude of court cases that have arisen over the years, as well as complaints from the business community, consequently concluding that companies and directors need to take a more responsible approach to the impact their decisions are having on the business as a whole.

 

Effect of the Companies Act 2006 on Company Directors

 

The Companies Act 2006 has made directors personally liable for gross misconduct in some circumstances, including liability for directors who misappropriated company funds, committed unlawful acts in commerce or who have generally abused their positions.

Before this development, company directors were more easily able to use the company as a shield to protect their wrongdoing and identity, and as such avoided responsibility for significant company losses that detrimentally affected employees, employee retirement schemes and company shareholders.

The new amendments better regulate and prevent such conduct.

Further, directors are now required to have all of their remuneration packages and any bonuses paid disclosed to an external body. The external body then can review payments at any time.

This procedure aims to stop directors paying themselves large bonuses without any connection to company performance.

Widening the scope of an individual director’s potential liability operates in the broader interests of the business community. It is the first time there has been a codification of company directors’ duties.

Directors’ duties are not as onerous as they seem to be. They consist of a general obligation of directors to act in the best interests of the company, in good faith and with reasonable care, skill, and diligence expected of a person carrying out the functions conducted by the director of the company.

The new amendments to the Act are welcomed changes for company law in the UK. Corporate responsibility and personal accountability for director misdemeanours are crucial in keeping business practices honest.

With that in mind, we can forgive the legislatures for creating an Act with 1,300 sections – even if it still makes for a difficult bedtime read.

 

You can access the full text of the Companies Act 2006 by following this link.

What is the company Annual Return (AR01 Form)?

What is the company Annual Return (AR01 Form)?

What is the Annual Return (AR01)?

 

Filing the annual return is a legal requirement in the UK.

If you are running a company in the UK, you must operate in accordance with the applicable legislation (e.g. Companies Act 2006). There are certain statutory annual requirements that you should comply with including:

  • Filing Annual Returns
  • Self-Assessment Tax Returns
  • Annual Accounts
  • Pay as you Earn (PAYE)
  • Corporation Tax
  • Quarterly VAT Returns

 

Of interest to this article is the annual return (AR01 form, part 24 of the Companies Act 2006).

Notably, from 30th June 2016, the name changed from annual returns to a confirmation statement. Nevertheless, there is no much change in substance. The phrase “annual return” is still widely used (so we will use both terms in this article).

 

The Meaning of Annual Return

 

An annual return is a statement that you file at the Companies House to confirm that the information that they hold about your company is correct.

You must file annual returns at least once every 12 months.

Failing to file the confirmation statement while your company is in operation is a criminal offense and entails serious consequences. So, if you fail to file the confirmation statement within the stipulated time, you may face one of the following actions depending on the case circumstances:

  1. Removal from the position of director of the company;
  2. Prosecution (if you fail to file a confirmation statement at all);
  3. Companies House may strike the company off the register of companies assuming that your company isn’t carrying on business or in operation. If this happens then your company will cease to exist and all its assets will become Crown property.

 

Filing Annual Return/Confirmation Statement

 

Confirmation Statements (Annual Return) should be filed online through the Companies House web filing service or by paper form which may be sent by post. In either case, you will need to fill form CS01 (previously form AR01).

However, the amount of fees is different; you will pay £40 if you file your company’s confirmation statement on paper and £13 if you file electronically. Most people prefer filing the confirmation statements through the online portal. You should note that you cannot use paper form to file confirmation statement for your company if:

  • The company is in the protected online filing scheme (PROOF)
  • You need to file form 363

 

Details that Must be Provided in a Confirmation Statement (Annual Return)

 

  • Company name and number
  • Registered office address
  • Made-up date of the return – date at which all information must be correct
  • Alternative inspection location (SAIL address), if you use one
  • Officers (directors and company secretary)
  • Persons with significant control (PSCs)

 

Responsibility for Filing Annual Return/Confirmation Statements

 

The legal responsibility for filing the confirmation statement (annual return) of a company lies with the directors. If you have a company secretary, you may delegate the responsibility to him or her but always have in mind that you are ultimately liable.

You must ensure that you file at least one confirmation statement every 12 months. However, you may file as many confirmation statements as you wish within the 12 months so long as you give an interval of 24 hours between any two consecutive confirmation statements. If you have just registered your company, you will have to wait for at least 48 hours before filing its first confirmation statement.

Although you are not required to pay more than once in a year even where you opt to file several confirmation statements, companies rarely file more than the mandatory one confirmation statement in a year-probably in the interest of time.

 

The Importance of the Annual Return/Confirmation Statement

 

While filing a confirmation statement is a statutory requirement, it is not meant to merely increase your responsibilities as a director. It serves several important functions including:

  • Keeping your company’s information on the official register up to date;
  • Improving the quality of information on the official register;
  • The fees paid when filing confirmation statements is an important source of revenue for the Companies House which needs money to maintain the register and to offer other services;

 

How does a Confirmation Statement (CS01 Form) Differ from an Annual Return (AR01 Form)

 

As noted above, confirmation statements replaced annual returns. This change took effect on 30th June 2016.

While there is no much difference, the following are worth noting:

Previously, the requirement was to include a full list of shareholders every three years. This is no longer a requirement with the confirmation statement. As a result, you avail the information to the Companies House whenever you want to ensure that your information is up to date and correct.

Moreover, now instead of having to provide a snapshot of your company data annually, you are only required to check and confirm that the information held by the Companies House is accurate and up to date. With the annual return, you were required to file within 28 days from the anniversary of the incorporation of your company. This period is now 14 days.

Finally, there is the introduction of the requirement to provide a list of people with significant control (PSC) at the time of filing your first confirmation statement.

For the official information on confirmation statements, click here.

 

Related: How to Change from Sole Trader to Limited Company?

 

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Please share them in the comments section below for us and our audience to read and benefit!

Difference Between Firm and Company

Difference Between Firm and Company

Difference between firm and company?

This question arises quite often. It even may cause an earnest confusion.

Usually, people encounter this question during pre-incorporation stage. And then they need to figure out the difference between firm and company. This is important to decide on further steps.

You have a great business idea. You are motivated. You just can’t wait to start bringing it to the life.

And then you encounter this kind of question.

It is hard to answer this question if you are not a lawyer. Or experienced business professional. This may even pull you back. Decrease your level of motivation.

Well, it’s easy to get an advice from a certified lawyer. But is it worth it?

You do not have to hire a lawyer so early, right? Not for every occasion.

Professional legal advice is expensive. And it’s probably not necessary here.

Yet, it is important to be always clear with your legal affairs. Everything related to law requires a responsible attitude. Poor legal decisions may cause financial loss. They even may harm your business. So, you anyways need to figure this out.

Well, that’s why we are here!

We’ll try to guide you through this question in a detailed manner.

 

So, what is the difference between firm and company?

 

While being not a big deal this question must be examined from two main perspectives:

 

  1. Legal perspective and;
  2. Linguistic perspective.

 

We agree that this is not a purely legal issue. However, the difference between firm and company first must be analyzed from legal perspective.

Linguistic part of it may actually shed more light. But it is unlikely to carry any monetary value for you. It also won’t result in any serious consequences.

It is the law that sets out the criteria and grounds for us to name certain things in certain ways. And it is again the law that stipulates how those things are dealt with in a real world.

So, what is the firm and what is the company from a legal perspective?

 

Difference Between Firm And Company From Legal Perspective

 

As you may know there are certain levels of law. There is a national law and international law. National law is often limited to certain country boundaries. International law has an international coverage.

National laws govern corporate structures. There is no universal international legislation governing this matter on a global scale.

To make a difference between firm and company, we must refer to the particular country (or state) legislation.

However, we have never encountered a firm being anything different than a company in any jurisdiction.

In most of the countries, including the United Kingdom, Continental European Countries and the United States, there are legal structures for running a business. That’s what we call a company, firm etc.

Most popular legal structures are limited companies, partnerships, public companies and corporations. Variety of business structures depends on country.

But there is no such business structure as firm.

None of major English-speaking jurisdictions consider firm as a business structure (e.g. Companies Act 2006 in UK and California Corporations Code do not define a firm as a separate legal structure).

So, from a legal perspective there is no such thing as a firm. At least as a separate business structure. But there is such thing as a company.

Both documents above refer to all business structures as companies.

The same is about Irish Companies Act 2014 and Australian Corporations Act 2001.

 

Not even a mention of firms in legislation?

 

Some of the documents may mention “firms” in their provisions. UK Companies Act 2006 and Australian Corporations Act 2001 mention “firms” in their texts.

However, they do not consider firms as separate business structures.

Often, the terms “firm” and “company” are interchangeable in legislation. This happens when legislator refers to specific types of companies. These are firms in their traditional meaning (such as law firms, accounting firms etc.).

Thus, firms and companies are not different from a legal perspective. Legally, there is no such a term as “firm”. Only company.

But, we know that firms do exist. We also know that they differ from companies.

But what is this difference in the end?

Seems like the major difference between firm and company lies in the linguistics.

Let’s see what is the firm and what is the company from a linguistic perspective.

 

Difference Between Firms And Companies From Linguistic Perspective

 

To answer this question, we refer to the most authoritative online dictionaries.

Most prominent online dictionaries such as Cambridge Dictionary and the Dictionary by Farlex define firm just like as a company or business.

Similarly, Merriem Webster Dictionary, TheFreedictionary.com, YourDictionary.com and Findlaw.com define firm as a business entity. They also highlight its main element – partnership nature. A company is called a firm when it is a partnership of two or more persons.

So from the linguistic perspective, there is a clear difference between firm and company.

Dictionaries make a difference when a company is a partnership. And then they call it a firm.

From a linguistic point of view company is a broader notion of business entity. The notion of “company” embraces the notion of “firm”.

In simple words, all business entities are usually referred as companies. Only those of companies that are partnerships are usually referred as firms.

In practice people often call certain types of business entities firms.

This takes its roots from traditions and customs. Traditionally, law firms and accounting practices often were established in the form of partnerships.

Today, people still call them firms. They do not pay too much attention to actual business structures. While they may be different.

 

Summary

 

Thus, there is a soft difference between two notions from the legal perspective. In contrary there is more explicit and straightforward distinction from the linguistics side.

It all depends on the perspective. If you approach this question from a legal perspective, there is only company. No firm as a business entity.

Unlike the legal point of view, if you approach this question from a linguistic perspective, there are both: firms and companies. But they are similar.

In practice though, there is no difference between firms and companies. It is okay to call some types of companies firms. That’s it.

Firms and companies are the same thing in nature.

Difference between them is basically in how you decide to make it. You won’t tangle anyone if you would say company instead of a firm or vice versa.

Likewise, you won’t be able to mess up with your company registration here. There is no available business structure called firm.

So, no worries. 🙂

 

Further Reading: Changing From Sole Trader to Limited Company

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Please share them in the comments section below for us and our audience to read and benefit!

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