Evaluation of Companies Act 2006
BIS has recently undertaken a project to evaluate the main provisions of Companies Act 2006. The purpose of the project was to evaluate the main outcomes of the Act and the consequences of the regulatory changes for companies, shareholders and other stakeholders.
Due to the scale of the Act, the evaluation did not cover all its provisions. Rather, provisions for evaluation were selected on the following criteria:
- provisions that were estimated in the Regulatory Impact Assessment to bring the biggest costs or savings;
- provisions that proved most contentious at the time of Parliamentary passage; and
- provisions that have been highlighted by business as being of particular interest/importance.
The provisions evaluated included the business review, electronic communications, directors' duties, annual general meetings, and directors' addresses.
The core of this project was a survey conducted by ORC International on behalf of the department of a random sample of 1000 companies of all sizes, supported by a series of company case studies, and interviews with several stakeholders such as business representative groups. The department also conducted analysis of other evidence, including data from Companies House.
A summary table, showing the main findings of the ORC report and other sources of evidence can be viewed here:
Evaluation of Companies Act 2006 - Summary Table (PDF, 66 Kb)
Summary of Companies Act 2006 Evaluation Report
The ORC International evaluation report presents the first primary research amongst companies and stakeholders into the awareness and impacts of the Companies Act 2006. It provides a number of positive findings in relation to levels of awareness of the key changes implemented and higher than anticipated adoption levels for some measures such as limited liability agreements and solvency statements.
- Overall, the report finds that 85% of companies are aware of changes brought in by the 2006 Act and even amongst small companies, where awareness was anticipated to be lower because of their reliance on advisers, 40% of companies know that changes have been made. Although the report makes clear that is probably too soon to say categorically that the Act's objectives have been met it notes positive progress in terms of the three objectives evaluated.
- The report finds that on the whole the changes are not seen as overly burdensome by companies and in particular key deregulatory measures such as the removal of the requirement for private companies to hold AGMs and the greater use of written resolutions have been particularly welcomed by companies and stakeholders, and seen as increasing flexibility.
- The report recognises that the Act was enabling in nature and that awareness and adoption levels are likely to rise over time as familiarisation with the new Act increases and the flow of new companies formed under the Act, with many of the new flexibilities such as the new model articles already in place, grows.
- Although it is disappointing that respondents to the company survey were unable in many cases to quantify savings from the various changes introduced by the Act, the report makes clear that it is still quite early after final implementation.
- Furthermore, adoption levels are generally in line with those expected at the time of the RIA and evidence from other sources suggests that significant savings have been achieved by companies in areas such as electronic communications and financial assistance.
- It is clear from the report that stakeholders and those companies with a better understanding of company law had a greater recognition of the deregulatory benefits that the Act had brought about.
- Stakeholders in particular noted a number of positives resulting from the Act including:
- a reduction in bureaucracy
- greater privacy for directors and shareholders
- greater clarity on directors' duties
- greater engagement with shareholders.
- The report also highlights the importance of advisers and sources of information in influencing companies' behaviour. Those companies whose main source of information was advisers (usually accountants or solicitors), their own professional institute, or BIS/Companies House publications were more likely to implement changes. Companies House information and website were positively rated. There do however remain issues about how best to communicate with the smallest companies who might prefer more direct and tailored communications.
The report identifies a number of areas where survey respondents and stakeholders suggested that further improvements could be made. The suggestion that greater clarity is needed on narrative reporting in the Business Review is timely: the department has recently consulted on issues relating to corporate narrative reporting and will take forward its thinking in this area as part of its wider review into corporate governance and economic short-termism. The narrative reporting consultation is now closed - the paper can be found on the consultation page.
A number of the suggested areas for improvement concern the nature of guidance on changes in the Act. The department and Companies House periodically review guidance to ensure that it remains fit for purpose, and this feedback is therefore useful in this context. The Government has taken the other suggestions on board, but does not consider further reforms in these areas to be a current priority.
ORC International Companies Act 2006 Evaluation Report - Executive Summary (PDF, 124 Kb)
ORC International Companies Act 2006 Evaluation Report - Volume 1 (PDF, 1.0 Mb)
ORC International Companies Act 2006 Evaluation Report - Volume 2 (PDF, 887 Kb)