Companies Act 2006 – 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.

COMMENTARY

Section 362: Introductory

614. This section explains that this Part relates to political expenditure and to political
donations made by companies to political parties, political organisations and independent
election candidates.

Section 363: Political parties, organisations etc to which this Part applies

615. This section establishes the general scope of the provisions of this Part and introduces
the concepts of:

• political parties;

• political organisations other than political parties;

• independent election candidates at any election to public office.

Section 364: Meaning of “political donation”

616. This section defines a "political donation" for the purposes of this Part by reference to
sections 50 to 52 of the Political Parties, Elections and Referendums Act 2000. For this
purpose, amendments made to the 2000 Act by the Electoral Administration Act 2006 (which
remove from the definition of “donation” loans made otherwise than on commercial terms)
are disregarded. This section reproduces the effect of section 347A(4) of the 1985 Act, except
that it includes donations to independent election candidates.

Section 365: Meaning of “political expenditure”

617. This section defines “political expenditure" for the purposes of this Part.

618. It reproduces the effect of section 347A(5) of the 1985 Act, except that it extends the
definition to expenditure incurred by the company in relation to independent election
candidates.