General obligations of a company and its directors
A company has many obligations in relation to accounts and reports under the Companies Act 2006 (CA 2006), as do a company’s directors (as defined): this practice note focuses on those that apply to every company. Other specific obligations in the CA 2006 relating to accounts and reports will vary according to whether the company qualifies as small, medium-sized, quoted or unquoted. In relation to these specific obligations and for further information on whether they apply to a particular company ask to speak to a member of our Corporate Team. Other requirements outside those in the CA 2006 that may apply are outside the scope of this practice note.
Preparing the accounts and directors’ report
The directors of every company must prepare:
1. accounts of the company for each of its financial years
2. a directors’ report for each financial year of the company
The contents of the directors’ report varies depending on whether the company qualifies as a small, medium-sized, quoted or unquoted company. A quoted company must also prepare a directors’ remuneration report.
The annual accounts and reports of a company must be:
1. approved by the directors and signed on behalf of the board
2. circulated to its members, debenture holders and other persons entitled to receive notice of general meetings within the specified time period (although there is an option to circulate a summary financial statement);and
3. filed with Companies House within the specified time period
A company’s individual accounts (as defined) may be prepared:
1. in accordance with the CA 2006, s 396, or
2. in accordance with international accounting standards (IAS)
If the company is a parent company (as defined), the directors must prepare group accounts as well as individual accounts for the company, unless an exemption under the CA 2006, ss 398, 400, 401 or 402 applies. Group accounts of certain parent companies are required to be prepared in accordance with IAS. The group accounts of other companies may be prepared:
1. in accordance with the CA 2006, s 404, or
2. in accordance with IAS
Approval and signing of accounts and reports
The annual accounts of a company must be approved by the board and signed on behalf of the board by a director on the company’s individual accounts balance sheet. The directors must not approve the accounts until they are satisfied that they give a true and fair view of the company’s assets, liabilities, financial position and profit and loss.. The directors’ report of a company must be approved by the board and signed on behalf of the board by a director or the secretary of the company.
Approving annual accounts or a directors’ report that do not comply with the statutory requirements constitutes a criminal offence by every director who:
1. knew that they did not comply, or was reckless as to whether they complied, and
2. failed to take reasonable steps to secure compliance with those requirements or, as the case may be, to prevent the accounts or report from being approved
The penalty for such an offence is:
1. on conviction on indictment, a (potentially unlimited) fine, and
2. on summary conviction, a fine not exceeding £5,000
Publication and laying of annual accounts and reports
Every company has an obligation to publish its annual accounts and reports and every public company is required to lay its annual accounts and reports before the company in general meeting..
Filing of accounts and reports
The directors of a company must deliver its accounts and reports to Companies House each financial year. The exact requirements in relation to filing accounts and reports vary according to whether the company qualifies as small, medium-sized, quoted or unquoted.. The periods for filing accounts and reports with Companies House vary according to whether the company is a public company or a private company at the end of the financial year in question.
1. of a private company must file accounts and reports with Companies House within nine months after the end of the ARP ,and
2. of a public company must file accounts and reports with Companies House within six months of the ARP
The allowed period for filing ends with the date in the relevant month corresponding to the specified date or the last day of the specified previous period. So, for instance, if the end of the ARP is 5 June, the accounts and reports must be filed by 5 December. If the specified date or the last day of the specified period is:
1. the last day of a month, the period ends with the last day of the appropriate month, regardless of whether that is the corresponding date (so that, for instance, where the ARP of a public company is 30 June, the accounts and reports must be filed by 31 December rather than 30 December), or
2. not the last day of a month but is the 29 or 30 and the appropriate month is February, ends with the last day of February (so that, for instance, where the ARP of a private company ends on 30 May, the nine-month filing period ends on the last day of February)
If the relevant ARP is the company’s first ARP and is longer than 12 months, the period for filing ends:
1. within nine months or six months, depending on whether the company in question is a private or a public company, from the first anniversary of the company’s incorporation, or
2. if later, within three months after the end of the ARP
If the relevant ARP is shortened by virtue of an alteration of the company’s accounting reference date by notice to Companies House the period for filing ends:
1. within nine months or six months, depending on whether the company in question is a private or a public company, after the end of the regular ARP, or
2. if later, within three months from the date of the company’s notice specifying the shortened ARP
Where the directors cannot meet the filing deadlines, they may apply to the Secretary of State for an extension of the filing period. Such an application must be made before expiry of the allowed period. If there are special reasons, the Secretary of State may grant such an extension by notice in writing to the company specifying such further period.
Failure to file accounts and reports
Failure to comply with the statutory filing requirements within the allowed period:
1. constitutes an offence by every person who immediately before the end of the period for filing those accounts and reports was a director of the company, and
2. makes the company liable to a civil penalty
Directors’ liability for failure to file accounts and reports
For a director charged with the offence for failure to comply with the statutory filing requirements within the allowed period:
1. it is defence to prove that they took all reasonable steps for securing that those requirements would be complied with before the filing period ends, but
2. it is not a defence to prove that the required documents were not, in fact, prepared
The penalty for this offence is:
1. on summary conviction, a fine not exceeding £5,000, and
2. for continued contravention, a daily default fine of up to £500
Any member or creditor of a company or Companies House may apply to court if the directors:
1. did not comply with the statutory filing requirements within the allowed filing period, and
2. fail to make good the default within 14 days after the service of a notice on them requiring compliance
The court may make an order:
1. directing the directors (or any of them) to make good the default within a specified period of time, and
2. providing that all expenses of and incidental to the application are to be borne by the directors
Company’s liability for failure to file accounts and reports
In addition to the directors’ liability, failure to comply with the statutory filing requirements within the allowed period makes the company liable to a penalty. It is not a defence in such proceedings for the company to prove that the documents in question were not in fact prepared as required by the statutory provisions. The amount of the penalty is determined in accordance with regulations made by the Secretary of State (the Regulations). The penalties set forth in the Regulations differ according to whether the relevant company is a public or a private company at the end of the financial year in question.
The late filing penalties are as follows:
1. where the length of period is not more than one month:
2. for public companies £750, and
3. for private companies £150
4. where the length of period is more than one month but not more than 3 months:
5. for public companies £1,500, and
6. for private companies £375
7. where the length of period is more than three months but not more than 6 months:
8. for public companies £3,000, and
9. for private companies £750, and
10. where the length of period is more than 6 months:
11. for public companies £7,500, and
12. for private companies £1,500
The penalties are doubled where a company files its accounts late in two successive financial years beginning on or after 6 April 2008.
False or misleading statements
Any director of a company is liable to compensate the company for any loss it suffered as a result of any untrue or misleading statement in, or omission from:
1. the directors’ report
2. the directors’ remuneration report, or
3. a summary financial statement to the extent it is derived from either of those reports
There are no statutory provisions governing the liability for false or misleading statements or omissions in the annual accounts. Such liability is therefore still subject to common law.
However, a director is only liable if they knew:
1. the relevant statement to be untrue or misleading or was reckless as to whether it was true or misleading, or
2. the omission to be dishonest concealment of a material fact
Directors are only liable to the company for false and misleading statements in reports and cannot be liable to any other person resulting from reliance, by that person, on information in such a report, eg, shareholders or third parties.
The directors’ liability for:
1. a civil penalty, or
2. a criminal offence
is not affected by this liability provision.
Unlimited companies’ exemption from obligation to file accounts
The directors of an unlimited company (as defined) are not required to deliver accounts and reports to Companies House is specified conditions are met (although they may choose to do so). The conditions are that, at no time during the relevant ARP:
1. has the company been, to its knowledge, a subsidiary undertaking (as defined) of an undertaking which was then limited (a limited liability undertaking)
2. have there been, to the company’s knowledge, rights exercisable by or on behalf of two or more limited liability undertakings which if exercisable by one of them would have made the company a subsidiary undertaking of it, or
3. has the company been a parent company (as defined) of a limited liability undertaking
This exemption does not apply, even if the conditions are met, if:
1. the company is a banking company (as defined) or insurance company (as defined) or the parent company of a banking group (as defined) or insurance group (as defined), or
2. each of the members of the company is:
3. a limited company
4. another unlimited company, each of whose members is a limited company, or
5. a Scottish partnership each of whose members is a limited company
The references to a limited company, unlimited company and Scottish partnership include a comparable undertaking incorporated in or formed under the law of a country outside of the United Kingdom.
Unlimited companies which are exempt from the obligation to file their accounts and reports must nevertheless prepare accounts, have them audited where required, and circulate them to their members and others.
The statutory provisions governing the requirements in connection with the publication by such an exempt unlimited company of its accounts and reports apply with certain amendments to take into account that the company is not required to deliver accounts and reports to Companies House:
1. where the company publishes its statutory accounts, the term statutory accounts refers to the accounts for a financial year as prepared in accordance with the CA 2006, Pt 15 and approved by the board of directors (instead of referring to the accounts for a financial year as required to be delivered to Companies House), and
2. where such an exempt unlimited company publishes its non-statutory accounts, the company’s statement must indicate, among other things, that the company is exempt from the requirement to deliver statutory accounts