A-Z Glossary of Terms
Definitions
A
A condensed version of annual financial accounts, comprising only a balance sheet and notes. 'Small' companies may submit abbreviated accounts to Companies House instead of full statutory accounts.
The duration covered in a Company Tax Return. Limited companies are liable to pay corporation tax on all taxable income earned during this period. Typically, it starts when trading commences and concludes on the accounting reference date (ARD). An accounting period cannot exceed 12 months but may be shorter.
The date marking the conclusion of a company's financial year and the deadline for the preparation of annual accounts. Typically, it falls on the anniversary of the last day of the month in which the company was incorporated. Annual accounts must be submitted to Companies House within 9 months of the accounting reference date.
The regulatory requirements that limited company statutory accounts must adhere to – either International Financial Reporting Standards or UK Generally Accepted Accounting Practices (GAAP).
The status assigned to a company engaged in trading and considered 'active' for corporation tax purposes.
An online platform provided for our clients, enabling users to access and manage company details, and electronically update and submit information to Companies House.
The process of issuing additional shares in a private limited company post-incorporation. Form SH01 'Return of allotment of shares' must be completed and filed with Companies House within one month of issuing any new shares.
A mandatory report outlining a company's financial performance during its most recent 12-month fiscal year. Annual accounts must be submitted to Companies House within 9 months of the accounting reference date (ARD) and included in the HMRC Tax Return.
An annual filing requirement for all limited companies and LLPs, the Annual Return aimed to provide a snapshot of a company's details at a specific point in time. It was replaced by the confirmation statement in June 2016. See 'confirmation statement' below.
See 'accounting reference date' above.
Also known as ‘articles of agreement’, this mandatory legal document constitutes a company's constitution. It outlines the internal structure, management rules, and rights and duties of directors and shareholders. 'Model Articles' are commonly used.
An independent review of a company’s annual accounts conducted by an accountant or auditor to ensure compliance with the Companies Act and accounting standards. ‘Small’ companies may be eligible for audit exemption.
An entitlement granted to ‘small’ companies exempting them from the requirement for an independent audit of their annual accounts. To qualify, a company must meet certain criteria, such as turnover thresholds and employee numbers.
An independent review provided to shareholders assessing the accuracy and fairness of a company's annual accounts.
A six-digit alphanumeric code issued by Companies House upon company formation, serving as an online signature for secure access to WebFiling or Software Filing.
Also known as ‘consent to act’ information, these are personal details used to create unique online signatures confirming consent to joining a company. Formerly required for company officers until 10th October 2015, they are now replaced by a 'consent to act' checkbox on officer appointment forms.
A provision under the Companies Act 1985 requiring a limited company to limit the total value of its issued shares to an authorised amount. Abolished by the Companies Act 2006, it no longer applies to companies formed after October 1st 2009.
B
A financial statement included in a company’s annual accounts detailing its assets, liabilities, and debts at a specific point in time. Shareholders, investors, and creditors use balance sheets to assess a company’s financial health. Auditors analyze balance sheets as part of annual account audits.
The collective term for a private limited company’s directors. In cases with only one director, that individual constitutes the entire board. Board meetings are convened to discuss significant matters and pass resolutions.
A gathering attended by some or all members of a company’s board of directors, along with other authorized individuals.
The distinctive identity of a product, image, or promise unique to a specific company. Brands are crafted to differentiate a company or product from competitors, establish positive consumer associations, and foster brand loyalty through consistent messaging and delivery.
The process of creating and maintaining a brand identity.
The perceived value of a brand among consumers.
A long-term plan outlining how a brand will be effectively communicated and delivered to consumers.
Any form of trade conducted by a company, including buying and selling goods, promoting the business, renting premises, accruing interest, managing investments, employing staff, providing services, and generating income from various sources. Companies engaged in active trade are subject to corporation tax.
An address used for receiving non-statutory business-related correspondence. It is not publicly listed and is typically provided to clients, suppliers, lenders, landlords, and other parties for communication purposes.
C
Issued by Companies House upon request to certify that a company has been in continuous existence since its date of incorporation, has satisfied its necessary filing requirements and legal obligations, has no actions being taken against it, and is not in the process of being struck off the company register. It essentially serves as a testament to the reliability and credibility of a particular company.
An official certificate issued to a limited company upon its incorporation, providing conclusive evidence of its legal existence under the Companies Act 2006.
Also referred to as a Certificate of Name Change, this is an official document issued by Companies House to any limited company that changes its name after incorporation.
An individual appointed to preside over board meetings.
- Registered Office – Mandatory. The official address of a limited company, displayed on the public record. Companies House and HMRC will deliver statutory mail to this location.
- Service Address – Mandatory. The official address of individual directors, secretaries, and persons of significant control. Placed on the public record and used by Companies House and HMRC to deliver statutory mail.
- Usual Residential Address – Mandatory. The home address of directors, secretaries, and persons of significant control, remaining private unless used as a registered office or service address.
- SAIL Address or Single Alternative Inspection Location Address - Optional. An alternate location where company registers can be kept and made available for public inspection.
- Business Address – Optional. A correspondence address for receiving non-statutory mail.
- Trading Address - Optional. The location where a company carries out its main trading activities.
Primary legislation governing limited companies. Fully implemented on October 1st, 2009, to modernize company law in the UK.
Legislation concerning incorporation and governance, applicable to companies formed before October 1st, 2009, when the Companies Act 2006 came into full effect.
Official documents received post-company registration, including the Memorandum and Articles of Association, Certificate of Incorporation, and Share Certificates.
An individual or firm appointed to manage a company on behalf of its owners, obligated to run the company lawfully and conscientiously.
The process of legally incorporating a limited company or LLP with Companies House, creating a distinct legal entity separate from its owners.
The Registrar of Companies in the UK, overseeing the registration and maintenance of limited companies and LLPs.
An online database maintained by Companies House containing public information about registered UK companies and LLPs.
An officer responsible for ensuring a company complies with statutory requirements, including maintaining company records and filing returns.
An annual filing confirming key company details held by Companies House.
Financial statements presenting the financial position of a group of companies as a single entity.
An individual or organization with the power to influence a company's management and policies.
A tax imposed on the taxable profits of UK limited companies and corporate entities.
D
A written acknowledgment of a long-term loan agreement between a company and a lender, typically secured against the company’s assets.
A class of shares in a limited company where dividends are paid only after all other classes of shares have received their dividends.
Members of a Limited Liability Partnership (LLP) formally appointed to ensure compliance with legal obligations and filing requirements. An LLP must have at least two designated members at all times, or all members may be designated.
Also known as a ‘company officer’, a director is appointed by shareholders to oversee the daily operations of a company. There is a minimum age requirement of 16 years. A company must have at least one director, with no limit on the maximum number. Directors can also be shareholders.
Funds withdrawn by a director from a company, exceeding salary or dividend payments, which may need to be repaid. These loans can be used to repay previous contributions or borrowed for personal use, to be returned at a later date.
An account recording funds received by a company from a director and withdrawals made by a director, including loan repayments or excess withdrawals.
A mandatory part of a company’s full statutory accounts, unless exempted as ‘small’ or dormant. It includes directors’ names, a summary of company performance, and future recommendations.
A director removed due to failure to fulfill legal duties as per the Companies Act 2006. Disqualification can range from 2-15 years for unfit conduct, prohibiting involvement in company management.
Payments to shareholders from company profits, usually annually, either in cash or additional shares.
The unique identifier for a web page or group of pages belonging to an individual or entity, such as rapidformations.co.uk.
Abbreviated annual accounts filed by inactive companies classified as ‘dormant’ – not engaged in trading or business activities.
A company not actively trading or generating income, designated as ‘dormant’ for corporation tax purposes.
See 'dormant accounts'.
E
Abbreviations representing the European Economic Area and Non-European Economic Area respectively.
Companies House offers an electronic filing service known as WebFiling. This platform enables the online submission of certain Companies House forms.
Companies House provides an email reminder service, notifying users of impending deadlines for filing annual accounts and confirmation statements.
A company has the option to extend its accounting period for a maximum of 18 months; however, this extension can only be utilized once every 5 years.
F
The deadlines by which annual accounts and confirmation statements must be submitted to Companies House, as well as the final date for filing Tax Returns and statutory annual accounts with HMRC.
Limited companies are legally obligated to report specific information to Companies House and HMRC. This includes submitting annual accounts and confirmation statements to Companies House, as well as Corporation Tax Returns and statutory accounts to HMRC.
The period covered in a company's annual accounts, typically spanning 12 months.
A flat management company, also referred to as a property management company, is often established by residents seeking to purchase a property's freehold or by developers to oversee tenants or owners.
A formation agent, also called a company formation agent, is a professional or organization specializing in incorporating limited companies and LLPs at Companies House on behalf of clients.
These agents offer expertise in company registration and provide support and guidance throughout the formation process. Many also offer comprehensive post-incorporation or company secretarial services.
Refers to the steps involved in incorporating a company with Companies House, also known as company formation, registration, or incorporation. This process can be completed through Companies House registration services or an online company formation agent.
Describes shares for which shareholders have fulfilled their financial obligations to the company, meaning no further payment is required for the equity issued by the company.
G
A financial commitment undertaken by the guarantor of a company limited by guarantee, wherein the guarantor pledges to cover the company’s debts, if necessary.
The individual or entity that serves as the guarantor for a company limited by guarantee. A guarantor can be a person, organization, or corporate entity. They offer security through guarantees, which limit the personal liability of the guarantor. Guarantors, also referred to as 'members', are essential for establishing a company limited by guarantee, requiring a minimum of one member. They may also serve as directors.
H
Her Majesty’s Revenue and Customs – The tax authority of the United Kingdom responsible for collecting all company and personal taxes.
Also referred to as a ‘parent company’, it is a private company limited by shares established to acquire shares in another company (referred to as its ‘subsidiary’) or to manage the operations of another company.
I
The total number of shares a company has issued to shareholders. This creates the share capital and determines the total financial liability of the shareholders. A minimum of one issued share (per shareholder) is required to form a company.
The process of giving or selling portions of a company by issuing shares to new or existing shareholders. At least one share must be issued when a company limited by shares is incorporated.
More shares can also be issued (allotted) after incorporation, if required. Directors will usually have the authority to issue more shares but they must refer to the articles of association before doing so to check for any restrictions.
J
Refers to the situation where a share or shares are collectively owned by two or more individuals. Typically, a company issues only one share certificate for joint shareholding.
An agreement between two or more businesses that collaborate to achieve a common objective.
The United Kingdom comprises three distinct legal jurisdictions: England and Wales; Scotland; and Northern Ireland.
K
Also referred to as 'know your customer', KYC is a procedure implemented by businesses to authenticate the identity of their customers and to mitigate risks associated with money laundering and other illicit activities.
L
A document containing a comprehensive list of all shareholders in a company. It is required to be provided on the first confirmation statement and subsequently every third confirmation statement thereafter. Companies House utilizes the information from each confirmation statement to update the Last Members List.
Fines imposed on a company and its directors if the annual accounts or Company Tax Return are submitted after the statutory filing deadlines.
A leaseholder can either be an individual who owns a property (under a lease) but not the underlying land, or a tenant who holds a lease to occupy a property.
A legal entity is an individual or corporate entity with the legal capacity to enter into contracts with other legal entities. An incorporated company is a common example of a legal entity in the UK.
A liquidator is a licensed insolvency practitioner appointed to oversee the winding up of a company and distribute its assets to creditors. In the case of solvent liquidation, assets are also distributed to the company's shareholders.
'Limited' refers to 'limited liability', which is the reduced financial responsibility of shareholders or guarantors to settle business debts using their personal assets. A limited company is a separate legal entity responsible for its own debts. All limited companies are required to include ‘limited’, ‘Ltd’, or ‘LTD’ at the end of their name, unless they qualify for exemption.
A legal structure commonly adopted by non-profit organizations and charities. Must be registered with Companies House. Companies limited by guarantee do not have share capital or shareholders; instead, they have guarantors whose liability is limited to the amounts of their guarantees.
The predominant type of private company, preferred by those seeking to generate profit and distribute surplus income to owners. Companies limited by shares are owned by shareholders and managed by directors. The liability of each shareholder is limited to the value of their shares.
An incorporated company with limited liability, either through shares or guarantees. It exists as a distinct legal entity.
A form of financial protection - the reduced liability imposed on the owners of a limited company. Owners' financial liability towards debt repayment is limited to the value of their shares (for companies limited by shares) or the amounts of their guarantees (for companies limited by guarantee).
A legal structure favored by professional partnerships like solicitors and accountants. Combines the flexibility of a traditional partnership with the limited liability of a company. LLPs are not subject to corporation tax; instead, each member registers for Self Assessment and pays Income Tax on their profits.
See Limited Liability Partnership.
The partners in a Limited Liability Partnership. LLPs do not have shareholders or directors; instead, they require a minimum of two members.
M
The date when all information in the confirmation statement must be accurate and 'made up' to. Typically, it's the anniversary of a company’s incorporation or the anniversary of the previous return's made-up date. Confirmation statements should be submitted to Companies House within 28 days of the company's incorporation anniversary or within 28 days of the previous confirmation statement's made-up date anniversary.
A category of shares in a limited company. Each management share carries multiple votes. Often utilized by original shareholders, also referred to as 'subscribers', to maintain greater control than new shareholders.
An alternative term for the shareholders or guarantors of a limited company.
One of the mandatory documents required by limited companies during the company registration process, alongside the articles of association. It lists the names of all subscribers (shareholders or guarantors) and signifies their intention to establish and become members of the company.
A written or recorded account of all topics discussed during a Board Meeting (of directors) or General Meeting (of shareholders), including all decisions made and attendees present.
N
In the context of company shares, the nominal value represents the amount a shareholder has paid or is obligated to pay for each share acquired in a company. It differs from the actual (market) value of a share. The nominal value of a company's issued shares determines its total share capital and the overall liability of the shareholders. Typically, shares have a nominal value of £1.
A nominee director is an individual or entity appointed by another person or organization to serve as a non-executive 'name only' director of a limited company, registered with Companies House. Nominee directors are often appointed by directors who prefer to maintain anonymity and keep their personal information off the public record.
A nominee secretary is an individual or entity appointed on behalf of an official company secretary to act in a non-executive 'name only' capacity as a company secretary. Nominee secretaries are appointed by individuals or entities seeking to preserve their privacy and avoid disclosing personal details on public records.
Non-voting shares are a class or type of share issued primarily as a tax-efficient form of compensation for employees. Holders of non-voting shares do not possess voting rights in the company.
O
A collective decision or agreement made by the shareholders or directors. An ordinary resolution requires a simple majority vote (above 50%) to pass and is commonly used for most business-related matters, except where the articles or the Companies Act mandates a special resolution.
The most common class of shares issued by private companies limited by shares. Ordinary shares are standard shares, typically offering equal voting rights, capital rights, and dividend payments to all shareholders.
A company's officers include the directors, and if applicable, the company secretary. A private limited company must have at least one director, while there is no mandatory requirement for a secretary. A public limited company (PLC) must have a minimum of two directors and one qualified company secretary.
An official receiver is a court-appointed civil servant employed by The Insolvency Service to oversee compulsory liquidations and bankruptcies.
Annual company accounts that are not submitted to Companies House before the filing deadline are considered overdue, resulting in an automatic late filing penalty. This penalty is doubled if a company files late for two consecutive years.
An overseas company is incorporated under the laws of a jurisdiction outside of the UK. It can register with Companies House as an overseas company if its owners intend to establish a place of business in the UK.
P
All companies and LLPs must maintain a register of individuals with significant control within the company. A PSC is any individual who holds a certain degree of influence over how the company is run. This typically includes shareholders/guarantors and directors, but it's not always the case. Information about PSCs must be provided during the company formation process and on the annual confirmation statement.
Public Limited Company. A limited liability company that offers its shares to the general public.
A provision that may be included in a company's articles to protect the rights of existing shareholders. With pre-emption rights, new shares must be offered to existing shareholders for subscription before they can be offered to new shareholders.
A class (type) of shares that give shareholders a preferential right to receive dividend payments ahead of other shareholders. Preference shares often do not carry voting rights.
The rights attached to shares issued by a limited liability company. The prescribed particulars will be described in the articles.
A limited liability company or a company limited by guarantee. Not to be confused with a public limited company (PLC).
Required as part of a company's full annual accounts (statutory accounts). This section of the accounts will show the financial performance of a company over its most recent financial year – sales, cost of sales, gross profit, expenses, net profit. The annual accounts must be filed with both Companies House and HMRC each year.
A legal register that all companies and LLPs must maintain with details of all persons with significant control (PSC) within the company. This register is typically kept at the registered office address.
The official register containing details of all incorporated companies. The information held in the Companies House register is available to all members of the public.
R
Rebranding is a strategic process that involves modifying a company's distinctive image, personality, and values, as well as those of its products. The primary goal of rebranding is to improve consumer perception and cultivate positive associations.
Redeemable shares are a class of shares often granted to employees with an agreement to be bought back by the company after a specified period. Typically, a company repurchases redeemable shares at their nominal value when an employee leaves the company.
The registered office is the official address of a limited company or LLP where statutory mail is delivered. It must be a complete physical postal address situated in the same country where the company is registered – England and Wales, Scotland, or Northern Ireland. Companies are obligated to maintain their statutory records at the registered office and allow public inspection, unless a SAIL address is used. Registered office details are required upon company formation and must be disclosed on public record. The location can be changed at any time after registration, provided it remains within the same UK jurisdiction.
Resolutions are decisions or agreements made by a majority vote of directors or shareholders. All resolutions passed by directors and shareholders carry legal significance. Copies of resolutions must be filed with Companies House and kept at the registered office or SAIL address.
Refers to Companies House Form SH01. This form must be completed and submitted to Companies House within one month of the allotment (issuance) of new shares.
S
A Single Alternative Inspection Location (SAIL) address serves as an alternative to the registered office, where a company can maintain some or all of its statutory registers and records. Companies House must be informed of any SAIL address used and the documents stored there. These details are made public.
These are specific words and phrases that require approval from the Secretary of State or another authorising body before inclusion in a company name. Supporting documentation or evidence must be provided if a sensitive word or expression is used in a registered company's name.
An official contact address required from directors, secretaries, or persons with significant control (e.g., shareholders). It is made public and used by Companies House and HMRC to deliver statutory mail to individual company officers.
Shares represent ownership units in a company limited by shares. Ownership can be divided into any number of shares of any value. Shareholders, whether individual people or corporate bodies, own shares and their number and value determine their percentage of ownership, control, financial liability for business debts, and profits.
Also known as ‘members’, shareholders are individuals or corporate bodies owning shares in a limited company. The first shareholders are called ‘subscribers’. Shareholders are entitled to a portion of company profits proportional to their share number and value.
Generally not involved in the day-to-day management of a company unless they are directors. They typically make decisions on significant matters such as changing the company name, removing a director, or altering the articles of association.
A legal contract between shareholders outlining their rights. It can protect minority shareholders and the company from the majority voting powers of others.
Share capital represents the total amount of money invested by shareholders in the company in exchange for shares.
A certificate of ownership of shares issued to each shareholder upon acquiring shares in a company. It details the number, value, and class of shares, amount paid or unpaid, shareholder name, and share ownership commencement date.
Share class refers to categories of shares in companies limited by shares. The most common is 'ordinary'. Other classes include preference shares, non-voting shares, management shares, and redeemable shares.
Share issue is the process of distributing shares in a company to individuals or corporate bodies, making them shareholders. Shares are issued during incorporation and can be issued or ‘allotted’ at any time afterward.
Share transfer is the process of transferring shares to another person or corporate body.
The Standard Industrial Classification (SIC) code, used since 1948 in the UK, categorizes businesses based on their primary economic and/or industrial activities. It is used by the Office for National Statistics for data gathering and analysis. Companies must state their SIC code(s) on the confirmation statement.
Small companies are categorized into small, medium, and large for annual accounts preparation. To be considered ‘small’, a company must meet at least two of the following criteria: annual turnover less than £6.5 million; balance sheet total less than £3.26 million; employ fewer than 50 people. Small companies can submit abbreviated accounts to Companies House.
SMEs refer to small and medium-sized enterprises.
A sole trader is a self-employed individual registered with HMRC for Self Assessment, paying Income Tax on all taxable income. Sole traders are not required to register with Companies House.
A special resolution is a legally binding decision achieved by a 75% majority vote of shareholders. It is passed for significant and rare decisions that directors cannot make.
Also known as ‘annual accounts’ or ‘financial accounts’, statutory accounts report on a company's financial activity over its financial year. All limited companies and LLPs must prepare and submit statutory accounts to Companies House annually. ‘Small’ companies can submit abbreviated accounts, while dormant companies can submit dormant accounts. All companies must send full statutory accounts to HMRC as part of their Tax Returns.
A document (Companies House Form SH19) detailing a company’s issued share capital at a certain date. It includes details about issued shares, nominal value and class, amount paid or unpaid on each share, and share rights particulars. This statement is required upon company registration, share capital changes, and when filing a confirmation statement.
Statutory mail refers to official mail issued by Companies House and HMRC, delivered to a company’s registered office. Directors’ statutory mail is delivered here.
The original shareholders or guarantors of a limited company subscribing to the memorandum of association during the company formation.
Supporting documentation allows the use of ‘sensitive’ words or phrases in a company name, governed by the Companies Act 2006 and Regulations. It must be filed with Companies House with the application to form a company or when registering a new company name.
T
A company's tax return, also referred to as form CT600, is an annual filing to report its financial performance, including expenditure, revenue, and profits, and to declare Corporation Tax owed to HMRC.
The total nominal value of a company's shares is determined by multiplying the total number of issued shares by the nominal (or par) value assigned to each share.
A trade mark is a form of intellectual property used to differentiate a business's products from those of others. It can encompass words, logos, slogans, images, or designs, and only the registered entity has the right to use it.
A company's trading address is where it conducts its business operations and receives general correspondence from suppliers, customers, and financial institutions.
A trading company, defined by HMRC, is actively involved in business activities, in contrast to a dormant company.
A company's trading name is utilized for conducting business operations and is distinct from its registered name.
The transfer of shares involves the process of moving shares from one individual (the transferor) to another (the transferee), either through sale or gift.
Turnover, also known as gross revenue, represents the total sales generated by a company within a specific timeframe.
A business or financial transaction entails the exchange of goods, services, or money between two or more parties, such as a cash purchase or a service agreement.
A trustee is entrusted with managing the assets held within a trust and ensuring the fulfillment of its objectives.
U
A Unique Tax Reference (UTR) is a distinctive ten-digit number issued by HMRC to newly incorporated companies. It functions as an identification code for individual companies for the purpose of corporation tax. UTRs are typically provided on official documents received from HMRC.
An Unlimited Company, also known as a private unlimited company, shares numerous similarities with a limited company as it is registered at Companies House under the Companies Act 2006. However, in the event of formal liquidation, the members of an unlimited company do not enjoy the protection of limited liability, exposing their personal assets, including those of shareholders or members, to risk.
The Usual Residential Address refers to the primary residence of a director, secretary, or person with significant control, such as a shareholder holding more than 25% of the company's shareholding. This information is mandatory when appointing such company officers and is required by Companies House. It remains confidential unless a company officer opts to use their home as a registered office or service address.
UTR stands for Unique Tax Reference, which is a distinct ten-digit number assigned by HMRC. It serves as an identifier for individual companies for the purpose of corporation tax. Additional details about UTRs can be found under the entry for Unique Tax Reference.
V
Value Added Tax (VAT) is levied on goods and services at each stage of production or distribution, from raw materials to the final sale. Companies exceeding the threshold set by HMRC must register for VAT.
Voluntary VAT registration occurs when a company chooses to register for VAT, even if its turnover is below the threshold for compulsory registration. This can sometimes be advantageous for companies seeking to reclaim VAT on business expenses.
Voting rights are privileges attached to certain classes of shares, granting shareholders the authority to vote on significant company matters, such as electing directors or approving major decisions.
Voluntary dissolution is the process of removing a company from the public register at Companies House. This typically occurs when a dormant company is no longer serving its intended purpose. By dissolving the company, owners are relieved of the obligation to file annual documents, thus saving time and expenses.
Voluntary liquidation, also known as Members' Voluntary Liquidation (MVL), is the winding up of a solvent company by its shareholders. The company's assets are used to settle its debts, and any remaining funds are distributed among shareholders.
W
Winding up is the procedure of liquidating a company, aiming to utilize its assets to settle debts and distribute any remaining funds to shareholders.
Written consent refers to documented permission granted for the execution of a corporate action. It is utilized when no formal meeting has been convened.
A written resolution enables a company to reach decisions without convening a shareholders' meeting. Ordinary resolutions require signatures from shareholders holding more than 50% of the voting rights, while special resolutions necessitate signatures from shareholders representing 75% of the voting rights.
Y
The year-end-date, also known as the 'accounting reference date,' marks the conclusion of a company's financial year. It can be altered to either shorten or lengthen a company's financial reporting period.
A-Z Glossary of Terms
Definitions
A
A condensed version of annual financial accounts, comprising only a balance sheet and notes. 'Small' companies may submit abbreviated accounts to Companies House instead of full statutory accounts.
The duration covered in a Company Tax Return. Limited companies are liable to pay corporation tax on all taxable income earned during this period. Typically, it starts when trading commences and concludes on the accounting reference date (ARD). An accounting period cannot exceed 12 months but may be shorter.
The date marking the conclusion of a company's financial year and the deadline for the preparation of annual accounts. Typically, it falls on the anniversary of the last day of the month in which the company was incorporated. Annual accounts must be submitted to Companies House within 9 months of the accounting reference date.
The regulatory requirements that limited company statutory accounts must adhere to – either International Financial Reporting Standards or UK Generally Accepted Accounting Practices (GAAP).
The status assigned to a company engaged in trading and considered 'active' for corporation tax purposes.
An online platform provided for our clients, enabling users to access and manage company details, and electronically update and submit information to Companies House.
The process of issuing additional shares in a private limited company post-incorporation. Form SH01 'Return of allotment of shares' must be completed and filed with Companies House within one month of issuing any new shares.
A mandatory report outlining a company's financial performance during its most recent 12-month fiscal year. Annual accounts must be submitted to Companies House within 9 months of the accounting reference date (ARD) and included in the HMRC Tax Return.
An annual filing requirement for all limited companies and LLPs, the Annual Return aimed to provide a snapshot of a company's details at a specific point in time. It was replaced by the confirmation statement in June 2016. See 'confirmation statement' below.
See 'accounting reference date' above.
Also known as ‘articles of agreement’, this mandatory legal document constitutes a company's constitution. It outlines the internal structure, management rules, and rights and duties of directors and shareholders. 'Model Articles' are commonly used.
An independent review of a company’s annual accounts conducted by an accountant or auditor to ensure compliance with the Companies Act and accounting standards. ‘Small’ companies may be eligible for audit exemption.
An entitlement granted to ‘small’ companies exempting them from the requirement for an independent audit of their annual accounts. To qualify, a company must meet certain criteria, such as turnover thresholds and employee numbers.
An independent review provided to shareholders assessing the accuracy and fairness of a company's annual accounts.
A six-digit alphanumeric code issued by Companies House upon company formation, serving as an online signature for secure access to WebFiling or Software Filing.
Also known as ‘consent to act’ information, these are personal details used to create unique online signatures confirming consent to joining a company. Formerly required for company officers until 10th October 2015, they are now replaced by a 'consent to act' checkbox on officer appointment forms.
A provision under the Companies Act 1985 requiring a limited company to limit the total value of its issued shares to an authorised amount. Abolished by the Companies Act 2006, it no longer applies to companies formed after October 1st 2009.
B
A financial statement included in a company’s annual accounts detailing its assets, liabilities, and debts at a specific point in time. Shareholders, investors, and creditors use balance sheets to assess a company’s financial health. Auditors analyze balance sheets as part of annual account audits.
The collective term for a private limited company’s directors. In cases with only one director, that individual constitutes the entire board. Board meetings are convened to discuss significant matters and pass resolutions.
A gathering attended by some or all members of a company’s board of directors, along with other authorized individuals.
The distinctive identity of a product, image, or promise unique to a specific company. Brands are crafted to differentiate a company or product from competitors, establish positive consumer associations, and foster brand loyalty through consistent messaging and delivery.
The process of creating and maintaining a brand identity.
The perceived value of a brand among consumers.
A long-term plan outlining how a brand will be effectively communicated and delivered to consumers.
Any form of trade conducted by a company, including buying and selling goods, promoting the business, renting premises, accruing interest, managing investments, employing staff, providing services, and generating income from various sources. Companies engaged in active trade are subject to corporation tax.
An address used for receiving non-statutory business-related correspondence. It is not publicly listed and is typically provided to clients, suppliers, lenders, landlords, and other parties for communication purposes.
C
Issued by Companies House upon request to certify that a company has been in continuous existence since its date of incorporation, has satisfied its necessary filing requirements and legal obligations, has no actions being taken against it, and is not in the process of being struck off the company register. It essentially serves as a testament to the reliability and credibility of a particular company.
An official certificate issued to a limited company upon its incorporation, providing conclusive evidence of its legal existence under the Companies Act 2006.
Also referred to as a Certificate of Name Change, this is an official document issued by Companies House to any limited company that changes its name after incorporation.
An individual appointed to preside over board meetings.
- Registered Office – Mandatory. The official address of a limited company, displayed on the public record. Companies House and HMRC will deliver statutory mail to this location.
- Service Address – Mandatory. The official address of individual directors, secretaries, and persons of significant control. Placed on the public record and used by Companies House and HMRC to deliver statutory mail.
- Usual Residential Address – Mandatory. The home address of directors, secretaries, and persons of significant control, remaining private unless used as a registered office or service address.
- SAIL Address or Single Alternative Inspection Location Address - Optional. An alternate location where company registers can be kept and made available for public inspection.
- Business Address – Optional. A correspondence address for receiving non-statutory mail.
- Trading Address - Optional. The location where a company carries out its main trading activities.
Primary legislation governing limited companies. Fully implemented on October 1st, 2009, to modernize company law in the UK.
Legislation concerning incorporation and governance, applicable to companies formed before October 1st, 2009, when the Companies Act 2006 came into full effect.
Official documents received post-company registration, including the Memorandum and Articles of Association, Certificate of Incorporation, and Share Certificates.
An individual or firm appointed to manage a company on behalf of its owners, obligated to run the company lawfully and conscientiously.
The process of legally incorporating a limited company or LLP with Companies House, creating a distinct legal entity separate from its owners.
The Registrar of Companies in the UK, overseeing the registration and maintenance of limited companies and LLPs.
An online database maintained by Companies House containing public information about registered UK companies and LLPs.
An officer responsible for ensuring a company complies with statutory requirements, including maintaining company records and filing returns.
An annual filing confirming key company details held by Companies House.
Financial statements presenting the financial position of a group of companies as a single entity.
An individual or organization with the power to influence a company's management and policies.
A tax imposed on the taxable profits of UK limited companies and corporate entities.
D
A written acknowledgment of a long-term loan agreement between a company and a lender, typically secured against the company’s assets.
A class of shares in a limited company where dividends are paid only after all other classes of shares have received their dividends.
Members of a Limited Liability Partnership (LLP) formally appointed to ensure compliance with legal obligations and filing requirements. An LLP must have at least two designated members at all times, or all members may be designated.
Also known as a ‘company officer’, a director is appointed by shareholders to oversee the daily operations of a company. There is a minimum age requirement of 16 years. A company must have at least one director, with no limit on the maximum number. Directors can also be shareholders.
Funds withdrawn by a director from a company, exceeding salary or dividend payments, which may need to be repaid. These loans can be used to repay previous contributions or borrowed for personal use, to be returned at a later date.
An account recording funds received by a company from a director and withdrawals made by a director, including loan repayments or excess withdrawals.
A mandatory part of a company’s full statutory accounts, unless exempted as ‘small’ or dormant. It includes directors’ names, a summary of company performance, and future recommendations.
A director removed due to failure to fulfill legal duties as per the Companies Act 2006. Disqualification can range from 2-15 years for unfit conduct, prohibiting involvement in company management.
Payments to shareholders from company profits, usually annually, either in cash or additional shares.
The unique identifier for a web page or group of pages belonging to an individual or entity, such as rapidformations.co.uk.
Abbreviated annual accounts filed by inactive companies classified as ‘dormant’ – not engaged in trading or business activities.
A company not actively trading or generating income, designated as ‘dormant’ for corporation tax purposes.
See 'dormant accounts'.
E
Abbreviations representing the European Economic Area and Non-European Economic Area respectively.
Companies House offers an electronic filing service known as WebFiling. This platform enables the online submission of certain Companies House forms.
Companies House provides an email reminder service, notifying users of impending deadlines for filing annual accounts and confirmation statements.
A company has the option to extend its accounting period for a maximum of 18 months; however, this extension can only be utilized once every 5 years.
F
The deadlines by which annual accounts and confirmation statements must be submitted to Companies House, as well as the final date for filing Tax Returns and statutory annual accounts with HMRC.
Limited companies are legally obligated to report specific information to Companies House and HMRC. This includes submitting annual accounts and confirmation statements to Companies House, as well as Corporation Tax Returns and statutory accounts to HMRC.
The period covered in a company's annual accounts, typically spanning 12 months.
A flat management company, also referred to as a property management company, is often established by residents seeking to purchase a property's freehold or by developers to oversee tenants or owners.
A formation agent, also called a company formation agent, is a professional or organization specializing in incorporating limited companies and LLPs at Companies House on behalf of clients.
These agents offer expertise in company registration and provide support and guidance throughout the formation process. Many also offer comprehensive post-incorporation or company secretarial services.
Refers to the steps involved in incorporating a company with Companies House, also known as company formation, registration, or incorporation. This process can be completed through Companies House registration services or an online company formation agent.
Describes shares for which shareholders have fulfilled their financial obligations to the company, meaning no further payment is required for the equity issued by the company.
G
A financial commitment undertaken by the guarantor of a company limited by guarantee, wherein the guarantor pledges to cover the company’s debts, if necessary.
The individual or entity that serves as the guarantor for a company limited by guarantee. A guarantor can be a person, organization, or corporate entity. They offer security through guarantees, which limit the personal liability of the guarantor. Guarantors, also referred to as 'members', are essential for establishing a company limited by guarantee, requiring a minimum of one member. They may also serve as directors.
H
Her Majesty’s Revenue and Customs – The tax authority of the United Kingdom responsible for collecting all company and personal taxes.
Also referred to as a ‘parent company’, it is a private company limited by shares established to acquire shares in another company (referred to as its ‘subsidiary’) or to manage the operations of another company.
I
The total number of shares a company has issued to shareholders. This creates the share capital and determines the total financial liability of the shareholders. A minimum of one issued share (per shareholder) is required to form a company.
The process of giving or selling portions of a company by issuing shares to new or existing shareholders. At least one share must be issued when a company limited by shares is incorporated.
More shares can also be issued (allotted) after incorporation, if required. Directors will usually have the authority to issue more shares but they must refer to the articles of association before doing so to check for any restrictions.
J
Refers to the situation where a share or shares are collectively owned by two or more individuals. Typically, a company issues only one share certificate for joint shareholding.
An agreement between two or more businesses that collaborate to achieve a common objective.
The United Kingdom comprises three distinct legal jurisdictions: England and Wales; Scotland; and Northern Ireland.
K
Also referred to as 'know your customer', KYC is a procedure implemented by businesses to authenticate the identity of their customers and to mitigate risks associated with money laundering and other illicit activities.
L
A document containing a comprehensive list of all shareholders in a company. It is required to be provided on the first confirmation statement and subsequently every third confirmation statement thereafter. Companies House utilizes the information from each confirmation statement to update the Last Members List.
Fines imposed on a company and its directors if the annual accounts or Company Tax Return are submitted after the statutory filing deadlines.
A leaseholder can either be an individual who owns a property (under a lease) but not the underlying land, or a tenant who holds a lease to occupy a property.
A legal entity is an individual or corporate entity with the legal capacity to enter into contracts with other legal entities. An incorporated company is a common example of a legal entity in the UK.
A liquidator is a licensed insolvency practitioner appointed to oversee the winding up of a company and distribute its assets to creditors. In the case of solvent liquidation, assets are also distributed to the company's shareholders.
'Limited' refers to 'limited liability', which is the reduced financial responsibility of shareholders or guarantors to settle business debts using their personal assets. A limited company is a separate legal entity responsible for its own debts. All limited companies are required to include ‘limited’, ‘Ltd’, or ‘LTD’ at the end of their name, unless they qualify for exemption.
A legal structure commonly adopted by non-profit organizations and charities. Must be registered with Companies House. Companies limited by guarantee do not have share capital or shareholders; instead, they have guarantors whose liability is limited to the amounts of their guarantees.
The predominant type of private company, preferred by those seeking to generate profit and distribute surplus income to owners. Companies limited by shares are owned by shareholders and managed by directors. The liability of each shareholder is limited to the value of their shares.
An incorporated company with limited liability, either through shares or guarantees. It exists as a distinct legal entity.
A form of financial protection - the reduced liability imposed on the owners of a limited company. Owners' financial liability towards debt repayment is limited to the value of their shares (for companies limited by shares) or the amounts of their guarantees (for companies limited by guarantee).
A legal structure favored by professional partnerships like solicitors and accountants. Combines the flexibility of a traditional partnership with the limited liability of a company. LLPs are not subject to corporation tax; instead, each member registers for Self Assessment and pays Income Tax on their profits.
See Limited Liability Partnership.
The partners in a Limited Liability Partnership. LLPs do not have shareholders or directors; instead, they require a minimum of two members.
M
The date when all information in the confirmation statement must be accurate and 'made up' to. Typically, it's the anniversary of a company’s incorporation or the anniversary of the previous return's made-up date. Confirmation statements should be submitted to Companies House within 28 days of the company's incorporation anniversary or within 28 days of the previous confirmation statement's made-up date anniversary.
A category of shares in a limited company. Each management share carries multiple votes. Often utilized by original shareholders, also referred to as 'subscribers', to maintain greater control than new shareholders.
An alternative term for the shareholders or guarantors of a limited company.
One of the mandatory documents required by limited companies during the company registration process, alongside the articles of association. It lists the names of all subscribers (shareholders or guarantors) and signifies their intention to establish and become members of the company.
A written or recorded account of all topics discussed during a Board Meeting (of directors) or General Meeting (of shareholders), including all decisions made and attendees present.
N
In the context of company shares, the nominal value represents the amount a shareholder has paid or is obligated to pay for each share acquired in a company. It differs from the actual (market) value of a share. The nominal value of a company's issued shares determines its total share capital and the overall liability of the shareholders. Typically, shares have a nominal value of £1.
A nominee director is an individual or entity appointed by another person or organization to serve as a non-executive 'name only' director of a limited company, registered with Companies House. Nominee directors are often appointed by directors who prefer to maintain anonymity and keep their personal information off the public record.
A nominee secretary is an individual or entity appointed on behalf of an official company secretary to act in a non-executive 'name only' capacity as a company secretary. Nominee secretaries are appointed by individuals or entities seeking to preserve their privacy and avoid disclosing personal details on public records.
Non-voting shares are a class or type of share issued primarily as a tax-efficient form of compensation for employees. Holders of non-voting shares do not possess voting rights in the company.
O
A collective decision or agreement made by the shareholders or directors. An ordinary resolution requires a simple majority vote (above 50%) to pass and is commonly used for most business-related matters, except where the articles or the Companies Act mandates a special resolution.
The most common class of shares issued by private companies limited by shares. Ordinary shares are standard shares, typically offering equal voting rights, capital rights, and dividend payments to all shareholders.
A company's officers include the directors, and if applicable, the company secretary. A private limited company must have at least one director, while there is no mandatory requirement for a secretary. A public limited company (PLC) must have a minimum of two directors and one qualified company secretary.
An official receiver is a court-appointed civil servant employed by The Insolvency Service to oversee compulsory liquidations and bankruptcies.
Annual company accounts that are not submitted to Companies House before the filing deadline are considered overdue, resulting in an automatic late filing penalty. This penalty is doubled if a company files late for two consecutive years.
An overseas company is incorporated under the laws of a jurisdiction outside of the UK. It can register with Companies House as an overseas company if its owners intend to establish a place of business in the UK.
P
All companies and LLPs must maintain a register of individuals with significant control within the company. A PSC is any individual who holds a certain degree of influence over how the company is run. This typically includes shareholders/guarantors and directors, but it's not always the case. Information about PSCs must be provided during the company formation process and on the annual confirmation statement.
Public Limited Company. A limited liability company that offers its shares to the general public.
A provision that may be included in a company's articles to protect the rights of existing shareholders. With pre-emption rights, new shares must be offered to existing shareholders for subscription before they can be offered to new shareholders.
A class (type) of shares that give shareholders a preferential right to receive dividend payments ahead of other shareholders. Preference shares often do not carry voting rights.
The rights attached to shares issued by a limited liability company. The prescribed particulars will be described in the articles.
A limited liability company or a company limited by guarantee. Not to be confused with a public limited company (PLC).
Required as part of a company's full annual accounts (statutory accounts). This section of the accounts will show the financial performance of a company over its most recent financial year – sales, cost of sales, gross profit, expenses, net profit. The annual accounts must be filed with both Companies House and HMRC each year.
A legal register that all companies and LLPs must maintain with details of all persons with significant control (PSC) within the company. This register is typically kept at the registered office address.
The official register containing details of all incorporated companies. The information held in the Companies House register is available to all members of the public.
R
Rebranding is a strategic process that involves modifying a company's distinctive image, personality, and values, as well as those of its products. The primary goal of rebranding is to improve consumer perception and cultivate positive associations.
Redeemable shares are a class of shares often granted to employees with an agreement to be bought back by the company after a specified period. Typically, a company repurchases redeemable shares at their nominal value when an employee leaves the company.
The registered office is the official address of a limited company or LLP where statutory mail is delivered. It must be a complete physical postal address situated in the same country where the company is registered – England and Wales, Scotland, or Northern Ireland. Companies are obligated to maintain their statutory records at the registered office and allow public inspection, unless a SAIL address is used. Registered office details are required upon company formation and must be disclosed on public record. The location can be changed at any time after registration, provided it remains within the same UK jurisdiction.
Resolutions are decisions or agreements made by a majority vote of directors or shareholders. All resolutions passed by directors and shareholders carry legal significance. Copies of resolutions must be filed with Companies House and kept at the registered office or SAIL address.
Refers to Companies House Form SH01. This form must be completed and submitted to Companies House within one month of the allotment (issuance) of new shares.
S
A Single Alternative Inspection Location (SAIL) address serves as an alternative to the registered office, where a company can maintain some or all of its statutory registers and records. Companies House must be informed of any SAIL address used and the documents stored there. These details are made public.
These are specific words and phrases that require approval from the Secretary of State or another authorising body before inclusion in a company name. Supporting documentation or evidence must be provided if a sensitive word or expression is used in a registered company's name.
An official contact address required from directors, secretaries, or persons with significant control (e.g., shareholders). It is made public and used by Companies House and HMRC to deliver statutory mail to individual company officers.
Shares represent ownership units in a company limited by shares. Ownership can be divided into any number of shares of any value. Shareholders, whether individual people or corporate bodies, own shares and their number and value determine their percentage of ownership, control, financial liability for business debts, and profits.
Also known as ‘members’, shareholders are individuals or corporate bodies owning shares in a limited company. The first shareholders are called ‘subscribers’. Shareholders are entitled to a portion of company profits proportional to their share number and value.
Generally not involved in the day-to-day management of a company unless they are directors. They typically make decisions on significant matters such as changing the company name, removing a director, or altering the articles of association.
A legal contract between shareholders outlining their rights. It can protect minority shareholders and the company from the majority voting powers of others.
Share capital represents the total amount of money invested by shareholders in the company in exchange for shares.
A certificate of ownership of shares issued to each shareholder upon acquiring shares in a company. It details the number, value, and class of shares, amount paid or unpaid, shareholder name, and share ownership commencement date.
Share class refers to categories of shares in companies limited by shares. The most common is 'ordinary'. Other classes include preference shares, non-voting shares, management shares, and redeemable shares.
Share issue is the process of distributing shares in a company to individuals or corporate bodies, making them shareholders. Shares are issued during incorporation and can be issued or ‘allotted’ at any time afterward.
Share transfer is the process of transferring shares to another person or corporate body.
The Standard Industrial Classification (SIC) code, used since 1948 in the UK, categorizes businesses based on their primary economic and/or industrial activities. It is used by the Office for National Statistics for data gathering and analysis. Companies must state their SIC code(s) on the confirmation statement.
Small companies are categorized into small, medium, and large for annual accounts preparation. To be considered ‘small’, a company must meet at least two of the following criteria: annual turnover less than £6.5 million; balance sheet total less than £3.26 million; employ fewer than 50 people. Small companies can submit abbreviated accounts to Companies House.
SMEs refer to small and medium-sized enterprises.
A sole trader is a self-employed individual registered with HMRC for Self Assessment, paying Income Tax on all taxable income. Sole traders are not required to register with Companies House.
A special resolution is a legally binding decision achieved by a 75% majority vote of shareholders. It is passed for significant and rare decisions that directors cannot make.
Also known as ‘annual accounts’ or ‘financial accounts’, statutory accounts report on a company's financial activity over its financial year. All limited companies and LLPs must prepare and submit statutory accounts to Companies House annually. ‘Small’ companies can submit abbreviated accounts, while dormant companies can submit dormant accounts. All companies must send full statutory accounts to HMRC as part of their Tax Returns.
A document (Companies House Form SH19) detailing a company’s issued share capital at a certain date. It includes details about issued shares, nominal value and class, amount paid or unpaid on each share, and share rights particulars. This statement is required upon company registration, share capital changes, and when filing a confirmation statement.
Statutory mail refers to official mail issued by Companies House and HMRC, delivered to a company’s registered office. Directors’ statutory mail is delivered here.
The original shareholders or guarantors of a limited company subscribing to the memorandum of association during the company formation.
Supporting documentation allows the use of ‘sensitive’ words or phrases in a company name, governed by the Companies Act 2006 and Regulations. It must be filed with Companies House with the application to form a company or when registering a new company name.
T
A company's tax return, also referred to as form CT600, is an annual filing to report its financial performance, including expenditure, revenue, and profits, and to declare Corporation Tax owed to HMRC.
The total nominal value of a company's shares is determined by multiplying the total number of issued shares by the nominal (or par) value assigned to each share.
A trade mark is a form of intellectual property used to differentiate a business's products from those of others. It can encompass words, logos, slogans, images, or designs, and only the registered entity has the right to use it.
A company's trading address is where it conducts its business operations and receives general correspondence from suppliers, customers, and financial institutions.
A trading company, defined by HMRC, is actively involved in business activities, in contrast to a dormant company.
A company's trading name is utilized for conducting business operations and is distinct from its registered name.
The transfer of shares involves the process of moving shares from one individual (the transferor) to another (the transferee), either through sale or gift.
Turnover, also known as gross revenue, represents the total sales generated by a company within a specific timeframe.
A business or financial transaction entails the exchange of goods, services, or money between two or more parties, such as a cash purchase or a service agreement.
A trustee is entrusted with managing the assets held within a trust and ensuring the fulfillment of its objectives.
U
A Unique Tax Reference (UTR) is a distinctive ten-digit number issued by HMRC to newly incorporated companies. It functions as an identification code for individual companies for the purpose of corporation tax. UTRs are typically provided on official documents received from HMRC.
An Unlimited Company, also known as a private unlimited company, shares numerous similarities with a limited company as it is registered at Companies House under the Companies Act 2006. However, in the event of formal liquidation, the members of an unlimited company do not enjoy the protection of limited liability, exposing their personal assets, including those of shareholders or members, to risk.
The Usual Residential Address refers to the primary residence of a director, secretary, or person with significant control, such as a shareholder holding more than 25% of the company's shareholding. This information is mandatory when appointing such company officers and is required by Companies House. It remains confidential unless a company officer opts to use their home as a registered office or service address.
UTR stands for Unique Tax Reference, which is a distinct ten-digit number assigned by HMRC. It serves as an identifier for individual companies for the purpose of corporation tax. Additional details about UTRs can be found under the entry for Unique Tax Reference.
V
Value Added Tax (VAT) is levied on goods and services at each stage of production or distribution, from raw materials to the final sale. Companies exceeding the threshold set by HMRC must register for VAT.
Voluntary VAT registration occurs when a company chooses to register for VAT, even if its turnover is below the threshold for compulsory registration. This can sometimes be advantageous for companies seeking to reclaim VAT on business expenses.
Voting rights are privileges attached to certain classes of shares, granting shareholders the authority to vote on significant company matters, such as electing directors or approving major decisions.
Voluntary dissolution is the process of removing a company from the public register at Companies House. This typically occurs when a dormant company is no longer serving its intended purpose. By dissolving the company, owners are relieved of the obligation to file annual documents, thus saving time and expenses.
Voluntary liquidation, also known as Members' Voluntary Liquidation (MVL), is the winding up of a solvent company by its shareholders. The company's assets are used to settle its debts, and any remaining funds are distributed among shareholders.
W
Winding up is the procedure of liquidating a company, aiming to utilize its assets to settle debts and distribute any remaining funds to shareholders.
Written consent refers to documented permission granted for the execution of a corporate action. It is utilized when no formal meeting has been convened.
A written resolution enables a company to reach decisions without convening a shareholders' meeting. Ordinary resolutions require signatures from shareholders holding more than 50% of the voting rights, while special resolutions necessitate signatures from shareholders representing 75% of the voting rights.
Y
The year-end-date, also known as the 'accounting reference date,' marks the conclusion of a company's financial year. It can be altered to either shorten or lengthen a company's financial reporting period.
