Chapter 4Classification and survey of types of business organisation3 the directors acknowledge their responsibility to ensure
that the company keeps accounting records com-
plying with s 392 of the Companies Act 2006 and
for preparing accounts which give a true and fair view
of the affairs of the company as at the end of the
accounting reference period and of its profit and loss
as required by s 399 of that Act and which in other
respects comply with the Companies Act 2006 in rela-
tion to the accounts.
The Companies Act 2006 allows small companiesto
avoid certain publicity in regard to the accounts. A small
company is one which has satisfied two of the following
conditions for the current financial year and the one
before:
1 Turnover, i.e. gross income before deducting the
expenses of running the business, not exceeding
£6.5 million.
2 Balance sheet total, which is in effect the total assets,
not exceeding £3.2 million.
3 Employees, not exceeding 50 as a weekly or monthly
average throughout the year.
A small company is allowed to file just an abbreviated
version of its balance sheet with the Registrar instead of
a copy of the full accounts required by the Companies
Act 2006. The members of the company, however, are
entitled to a copy of fuller accounts. In particular, the
abbreviated accounts do not have to show details of the
salaries of directors, nor is it necessary to file a directors’
report or a profit and loss account.
As regards the fuller accounts to which members are
entitled, these need not be full Companies Act 2006
accounts. The Companies Act 2006 provides that a small
company will comply with the law if it provides what are
called shorter form financial statements to the members.
A number of items may be left out of the shorter form
statements, e.g. details of any debentures issued in the
course of the year.
The Companies Act 2006 also allows medium com-
paniesto avoid certain publicity in regard to the
accounts but to a lesser degree. A medium company
is one which has been within the limits of two of the
following thresholds for the current year and the one
before:
1 Turnover: not exceeding £22.9 million.
2 Balance sheet total: not exceeding £12.9 million.
3 Employees: not exceeding 250 as a weekly or monthly
average throughout the year.
Shareholders are entitled to fullCompanies Act 2006
accounts. The modifications in regard to the filed
accounts are:
1 the profit and loss account may commence with
‘gross profit or loss’ which combines ‘turnover’, ‘cost
of sales information’ and ‘other operating income’
which would otherwise require separate disclosure;
2 there is no need to give, in the notes to the accounts,
the analyses of turnover and profit according to the
branches of the company’s business in which they
were made.
The directors’ report and balance sheet are required
in full. The reason for the modification is that details
of turnover and profit were used, sometimes to the
unreasonable disadvantage of medium companies, by
competitors who could identify the most profitable and
the most unprofitable areas of the medium company’s
business.
The directors must state in the accounts that the
company satisfies the conditions for a small or medium
company and this must be supported by a report by
the auditors giving an opinion confirming this. The
auditors’ report on the full accounts must accompany
the modified accounts, even though the full accounts are
not sent to the Registrar. The references to reports of
auditors do not apply where the company is exempt
from the obligation to appoint auditors.
All companies must file with the Registrar of Com-
panies an annual return showing, for example, who the
company’s directors and its secretary are and the inter-
ests of the directors as directors in other companies. The
return also shows the changes in the company’s mem-
bership over the year and a full list of members must be
given every three years. However, the Companies
Registration Office, i.e. Companies House, has a system
under which it produces a document for the annual
return listing all the relevant information which it has
on the company. The company secretary merely confirms
that it is correct or amends it as required. The ‘shuttle
system’, as it is called, is designed to save a significant
amount of form filling by company administrators. It is
worth noting here that for companies with 20 or fewer
members Companies House will give a list of members
from previous records it holds so that the company will
have only to correct the list if necessary. This will mean,
in effect, that these companies, i.e. 98 per cent of the
Register of Companies, will be able to submit a full list
of members annually.89