Corporate governance for UK group companies and subsidiaries

Retaining sufficient control over what a subsidiary is doing, while respecting the independence required by company law, is a familiar challenge for groups. It is the subsidiary’s directors who are responsible for decisions taken in the company’s name, and they must exercise their duties in the interests of the subsidiary itself, not the wider group.

In recent years, the context in which those duties are discharged has changed significantly. Alongside governance‑related reporting reforms introduced in 2018, the UK is now well advanced in a programme of Companies House reform under the Economic Crime and Corporate Transparency Act 2023 (ECCTA). These developments mean that subsidiary governance today is as much about practical compliance, controls and execution as it is about board structure and reporting narratives.

Governance reporting obligations for UK subsidiaries

The Companies (Miscellaneous Reporting) Regulations 2018 amended the Companies Act 2006 to introduce a range of governance‑related disclosure requirements. These requirements apply to individual UK companies, regardless of whether they form part of a wider group.

Depending on size and other thresholds, a UK subsidiary may be required to include one or more of the following within its annual reporting:

• a corporate governance statement (for large private companies);
• a statement explaining how the directors have had regard to their duties under section 172 of the Companies Act ('s172 duty') to promote the success of the company;
• employee engagement disclosures; and
• stakeholder engagement disclosures.

The thresholds apply on a company‑by‑company basis. In practice, this means that certain subsidiaries - such as employment or service companies - may fall within scope even where other group companies do not.

Where disclosures are required, they must accurately describe how governance operates in practice at subsidiary level, even where group‑wide policies, committees or leadership structures are relied upon.

Which governance code should a subsidiary apply?

Where a corporate governance statement is required, the directors’ report must state:

• which corporate governance code, if any, has been applied;
• how that code has been applied; and
• any departures from the code, together with explanations.

If no recognised code has been applied, the company must explain why and describe the governance arrangements that operated during the year.

The UK Corporate Governance Code

The UK Corporate Governance Code ('the Code') was updated in January 2024 and applies to accounting periods beginning on or after 1 January 2025, with enhanced internal controls reporting applying from 1 January 2026.

The Code is designed for listed companies and is highly prescriptive. For most wholly‑owned subsidiaries, formal adoption often results in extensive explanations of non‑compliance, which may offer limited value to stakeholders.

The QCA Code

The QCA Code, developed by the Quoted Companies Alliance (QCA), is aimed at AIM‑quoted companies and provides greater flexibility, but it is not designed with subsidiaries in mind and is not freely accessible.

Overseas governance codes

UK subsidiaries of overseas parent companies may, in some cases, apply the governance code adopted by the parent, provided it is freely available in English. In practice, this option is often of limited relevance to subsidiary‑level governance.

The Wates Principles

The Wates Corporate Governance Principles for Large Private Companies were developed specifically for large private companies and make express reference to group structures and subsidiaries. They are flexible and principles‑based and are often well suited where a subsidiary wishes to adopt a recognised framework that is not excessively prescriptive.

A bespoke internal governance framework

Many groups choose not to adopt any external code at subsidiary level. Instead, they explain why existing codes are not a good fit and describe their own internal governance framework as applied in practice.

Where a group has a mature governance model, this approach can provide a clearer and more meaningful explanation of how authority, decision‑making, escalation and oversight operate within the subsidiary.

Companies House reform and its impact on subsidiary governance

ECCTA fundamentally reforms the role of Companies House, with the aims of improving transparency and modernising the UK company law framework. Under the ECCTA reforms, the company registrar is moving from a passive recipient of information to a more active gatekeeper, with enhanced powers to query, reject and annotate filings.

Key elements of the reform programme include:

• mandatory identity verification for directors and people with significant control - required for new appointments from 18 November 2025, with a transition period for existing roles;
• increased reliance on verified individuals and controlled filing routes;
• additional confirmation statement requirements; and
• greater scrutiny of the accuracy and consistency of information on the public register.

For subsidiary boards, these reforms have practical consequences. Routine actions - such as appointing directors, approving filings or completing confirmation statements - can now be delayed or blocked if compliance steps have not been completed in advance.

Effective subsidiary governance therefore requires attention not only to board composition and decision‑making, but also to filing readiness, identity verification and proactive compliance management.

What should boards of UK group companies do now?

Against this evolving backdrop, boards of UK subsidiaries should take a forward‑looking and practical approach to governance.

Re‑confirm entity‑level accountability

Boards should regularly re‑affirm that directors’ duties are owed to the subsidiary itself. Group influence should be exercised through formal shareholder decisions rather than informal instruction, with clear records of how decisions are taken.

Embed Companies House reform into governance processes

Boards should ensure that responsibility for Companies House compliance is clearly allocated, with escalation routes in place where filings are queried or rejected.

Treat identity verification as a governance gating item

Identity verification should be embedded into appointment, re‑appointment and off‑boarding processes. Boards should seek assurance that no individual acts as a director unless applicable verification requirements have been met.

Maintain robust internal records

Even as the public register takes on greater importance, accurate internal records remain essential, particularly the register of members and constitutional documents. Boards should be satisfied that these records are complete and aligned with filings.

Take a joined‑up approach to reporting

Where a subsidiary is within scope of governance and related disclosures, boards should consider them as a connected reporting package, ensuring consistency between governance statements, s172 reporting and stakeholder disclosures.

Align subsidiary governance with group risk and controls

Subsidiaries are often the delivery mechanism for group‑wide risk management, internal controls and fraud prevention measures. Boards should ensure delegations, policy adoption and escalation thresholds are clear, proportionate and workable.

Use reform as an opportunity

Finally, boards should view current reforms not just as a compliance burden, but as an opportunity to simplify governance structures, improve clarity of accountability and strengthen confidence in how the group is governed in practice.