Company and Partnership law
Information on the law governing the establishment and operation of limited companies and partnerships - including Limited Partnerships and Limited Liability Partnerships (LLPs). Includes current policy developments, the implementation and evaluation of the Companies Act 2006 and European company law.
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.
What's New?
Amending Part 23 of the Companies Act 2006 - Investment Companies
In July 2010 The Department for Business Innovation and Skills, HMT and HMRC jointly published a consultation paper on changes to the tax rules for investment trust companies and the distributions rules for investment companies, and a summary of responses was issued in December 2010. Links to these documents are below:
Investment trust companies - consultation document
Investment trust companies - impact assessment
Summary of responses
The Companies Act 2006, taking partial advantage of an option in the Second EU Company Law Directive, provides a special regime for public limited companies that register as “investment companies” enabling them to pay dividends out of revenue profits without being required to satisfy the “net asset restriction” which applies to other public companies. This special regime is set out in sections 832 to 835 of the Companies Act 2006.
HMRC published draft regulations which implement changes to the tax rules on 11 November, and these can be found here. The Department for Business, Innovation and Skills is now publishing the draft Regulations to amend sections 832 to 835 of the Act.
draft Companies Act 2006 (Amendment of Part 23)(Investment Companies) Regulations 2012
These draft Regulations make the following amendments to the provisions in the Companies Act 2006 covering investment companies:
• The condition in section 832(5)(a) will be amended so that the company’s shares must be admitted to trading on a “regulated market”, and therefore not necessarily listed on a recognised UK investment exchange as currently required.
• The requirement in section 833(2)(a) is widened so that the company’s business must consist of investing its funds in “shares, land or other assets” rather than mainly in securities.
These draft Regulations also repeal:
• Sections 833(2)(b) and 834, which limit the holdings which an investment company may have in other companies.
• Section 833(2)(d), the requirement for an investment company not to have retained more than 15% of its income from securities in respect of each accounting reference period. [Proposed amendments to the tax legislation will continue to provide a similar retention test applying to all of an investment trust company’s income.]
• Section 832(5)(b)(i), part of section 832(5)(b)(ii) and section 833(2)(c) which together prohibit the distribution of capital profits.
• Section 835, which contains a regulation-making power which is obsolete as a result of the other amendments and repeals.
Transitional Provisions
Regulation 3 provides a transitional provision in relation to the repeal of section 833(2)(d). The repeal only has effect in relation to accounting reference periods beginning on or after 6th April 2012 (the date on which the Regulations are expected to come into force).
The other amendments and repeals will not affect the operation of the amended and repealed provisions as they currently stand in relation to periods of time before 6th April 2012.
The Regulations will not require existing investment companies to give fresh notice to the registrar of their intention to carry on business as an investment company. They will be able to either carry on investing mainly in securities or to widen their portfolio to include land or other assets.
Comments
Comments on the draft Regulations will be considered. Please email comments by 2 January 2012 to Margaret.Sutherland@bis.gsi.gov.uk or send them in hard copy by that date to:
Margaret Sutherland
3 Spur 2
1 Victoria Street
London SW1H 0ET
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:
Current 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.
Draft SI - The Companies Act 2006 (Annual Returns) Regulations 2011 (PDF, 36 Kb)
Explanatory Memorandum - The Companies Act 2006 (Annual Returns) Regulations 2011 (PDF, 54 Kb)
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.
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