Companies Act 2006 Explanatory Notes


Part 14: Control of Political Donations and Expenditure
Background and summary

611.In October 1998 the Committee on Standards in Public Life presented to the Prime Minister its report on the funding of political parties in the UK. The Report recommended that any company intending to make a donation (whether in cash or in kind, and including any sponsorship, or loans or transactions at a favourable rate) to a political party or organisation should be required to have the prior authority of its shareholders. The Government accepted this recommendation, and implemented it through the Political Parties, Elections and Referendums Act 2000 (“the PPERA”). The new regime for control of political donations and expenditure is in Part 10A of the 1985 Act, as inserted by section 139 of and Schedule 19 to the PPERA.

612.Part 14 of the Act restates the existing provisions in a style consistent with the other sections, but most of the key elements of the framework established by the PPERA remain. In particular:

  • companies will continue to be prohibited from making a donation to a political party or other political organisation or from incurring political expenditure unless the donation or the expenditure has been authorised, in a typical case by the members of the company;

  • a “political donation” will continue to be defined by reference to sections 50 to 52 of the PPERA, and for this purpose amendments made to the PPERA by the Electoral Administration Act 2006 (which remove from the definition of “donations” loans made otherwise than on commercial terms) will be disregarded;

  • an approval resolution may authorise the making of donations and incurring of expenditure for a period of not more than four years commencing with the date of the passing of the resolution up to a value specified in the resolution;

  • donations or expenditure by a subsidiary must, in general, be authorised by resolutions of the members of the subsidiary and of the holding company; and the directors of such a holding company will continue to be liable for unauthorised donations by the subsidiary company;

  • a company need not seek prior shareholder consent for a donation to a political party or organisation unless the aggregate amount of the donation together with any other relevant donations made by the company and other companies in the group of which it is a member in the previous 12 months exceeds £5,000;

  • there are no criminal sanctions in relation to the making of unauthorised donations or the incurring of unauthorised political expenditure;

  • civil remedies are available to a company in the event of breach of the prohibitions and may be pursued in the normal manner by the company. There will continue to be available an action under which shareholders may enforce on behalf of the company any of the remedies available to a company.

613.The main changes from Part 10A of the 1985 Act are that:

  • in line with the general approach in the Act, references to the general meeting are removed to make it clearer that private companies can authorise donations and/or expenditure by written resolution;

  • a holding company must authorise a donation or expenditure by a subsidiary company only if it is a “relevant holding company” (that is, the ultimate holding company or, where such a company is not a “UK-registered company”, the holding company highest up the chain which is a “UK-registered company”);

  • a holding company is permitted to seek authorisation of donations and expenditure in respect of both the holding company itself and one or more subsidiaries (including wholly-owned subsidiaries) through a single approval resolution (section 367(1));

  • companies are permitted to table separate approval resolutions in respect of donations to political parties and donations to other political organisations (section 367(3));

  • companies are required to seek authorisation for donations to independent candidates at any election to public office held in the UK or other EU member state and for expenditure by the company relating to independent election candidates;

  • the sections provide greater clarity for companies about the provision of facilities (for example, meeting rooms) for trade union officials by introducing a specific exemption for donations to trade unions (section 374). The Act does not introduce a specific exemption in relation to paid leave for local councillors because this does not constitute a political donation or political expenditure under Part 10A of the 1985 Act or this Act;

  • there are important changes to the rules on ratification and liability in cases of unauthorised donations or expenditure;

  • the special rules in respect of the parent company of a non-GB subsidiary undertaking (sections 347E and 347G of the 1985 Act) are not reproduced;

  • The new provisions apply to Northern Ireland.

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