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Companies Act 2006 (The CA2006 was the outcome of a long process of…
Companies Act 2006
The CA2006 was the outcome of a long process of development and consultation which began in 1997. It was introduced with the aim of reforming company law and
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Size criteria
A company’s size is a key issue in determining which accounting rules it can follow by law. In effect, the smaller a company, the fewer and simpler rules it has to follow, although:
some types of company cannot follow simpler regimes, even if they meet the size criteria, for example if they are listed or carry on insurance or banking activities
companies can always choose to opt in to a more complex regime if they wish to, for example if they are just starting up but intend to grow rapidly and so will need to move reasonably soon to larger company rules.
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Accounting rules
Part 15 of the CA2006 covers the main accounting requirements, consisting mainly of administrative instructions such as how often to prepare accounts, who they must be sent to and so on. This part of the Act also deals with the content of accounts, but much of the detail is in secondary legislation
Some rules on accounts apply to nearly all companies. So, for example, all companies must send their accounts to their shareholders; and for all companies, failure to maintain accounting records could lead to a criminal offence being committed by every officer of the company who is in default.
The main differences in accounting requirements arise between public and private companies or between micro or small companies and other companies. So for example:
All limited liability company financial statements must be filed at Companies House (so making them available to the general public). For private companies this must be within nine months of the year end, but public company financial statements must be filed within six months of the year end.
Small companies do not have to produce group accounts, can produce relatively simple accounts and are exempt from audit
Micro-entities, which are the very smallest of companies, can prepare and file extremely simplified accounts with almost no disclosures.
Key features
The CA2006 is divided into 47 Parts and has a long list of Schedules attached to it. The way it applies to companies depends on their nature or size, although many provisions apply to all companies. The main (but not only) distinctions are
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The Companies Act 2006 (CA2006) consolidated and replaced many of the provisions of the previous legislation, i.e. the Companies Acts of 1985 and 1989, and is made up of around 1,300 sections supplemented by secondary legislation.
Sets out the statutory requirements of UK companies, including the rules over their formation, activities, relationships with shareholders and their management
Although much of the Act is a product of the development of UK law, substantial parts are based on the requirements of EU Directives, which must be transposed into UK law to be effective. These include the Accounting Directive, the Statutory Audit Directive and various older company law directives.