For many businesses, corporate governance is still treated as a compliance exercise: board minutes, statutory filings and annual accounts. That approach is increasingly too narrow. In a market where investors, lenders, commercial partners and regulators expect greater transparency, governance influences how confidently a business is assessed.
The numbers give a sense of the field. There were an estimated 5.7 million private-sector businesses in the UK at the start of 2025, of which 99.85 per cent were small or medium-sized enterprises employing fewer than 250 people.[1] Companies House, which registers the incorporated part of that population, recorded 5.48 million companies on its register at 31 March 2026 and accepted 16.5 million filings during 2025–26.[2]
For founders, the implication is straightforward: good governance is not reserved for listed companies. It becomes commercially relevant as soon as ownership, employees, external funding, intellectual property and strategic decision-making grow more complex.
Why Governance Can Create Commercial Value
Good governance provides a framework for answering four fundamental questions:
- Who decides?
- Who is accountable?
- What controls exist?
- What happens when something goes wrong?
A well-structured company can make decisions more efficiently because authority is defined. Investors can assess risk more readily because information and responsibilities are documented. Founders can reduce the likelihood of disputes because expectations are established before pressure arises.
The Companies Act 2006 imposes seven general duties on directors, including duties to act within their powers, to exercise independent judgment, to avoid conflicts of interest and to promote the success of the company.[1] The last of these requires a director to have regard, among other matters, to the likely long-term consequences of a decision and to the interests of employees.[2] These obligations provide the legal foundation, but effective governance goes further by translating them into practical processes.
A growing company may, for example, establish reserved matters requiring shareholder approval for major borrowing, acquisitions, significant asset disposals or the issue of new shares. A shareholders’ agreement may also address founder deadlock, share transfers and exit arrangements.
The Governance Standard Is Moving
The UK Corporate Governance Code 2024 applies to companies with equity shares listed in the commercial companies category or the closed-ended investment funds category, wherever they are incorporated, for financial years beginning on or after 1 January 2025.[3] Its revised Provision 29 applies for financial years beginning on or after 1 January 2026 and requires boards within scope to monitor the company’s risk management and internal control framework, to carry out an annual review of its effectiveness, and to make a declaration in the annual report on the effectiveness of the material controls as at the balance sheet date.[4]
The Code does not generally apply to private companies. However, the Financial Reporting Council recognises that companies outside its mandatory scope may adopt appropriate governance practices, and the Wates Principles provide a framework for large private companies that must report on their governance arrangements under the Companies (Miscellaneous Reporting) Regulations 2018.[5]
This creates an important market distinction: the legal minimum and commercially credible governance are not always the same thing.
What to Consider
Growing businesses should periodically examine:
* Decision-making: are directors’ and shareholders’ powers clearly separated?
* Founder relationships: is there a deadlock mechanism if shareholders cannot agree?
* Controls: are financial, operational, reporting and compliance risks monitored?
* Conflicts: are related-party transactions and competing interests properly documented?
* Succession: what happens if a founder retires, dies or becomes unable to participate?
* Investment readiness: could an investor understand the ownership, governance and   decision-making framework through due diligence?
* Records: are board decisions, statutory registers and corporate filings maintained accurately?
The FRC’s current position emphasises proportionate governance rather than a single model. It has expressly declined to prescribe how many controls a board should treat as material, while noting that most of the companies engaging with it identify somewhere between 30 and 50, with more in the financial sector.[1] The relevant question for a private company is not how many controls a listed peer reports, but which controls would matter if they failed.
Practical Takeaway
Governance becomes a competitive advantage when it reduces uncertainty without creating unnecessary bureaucracy.
For founders, the objective should not be to imitate a multinational corporation. It is to build a proportionate framework that evolves with the business, covering ownership, authority, risk, controls, succession and accountability.
The strongest businesses do not wait for a dispute, a funding round or a regulatory challenge to discover whether their governance works. They build the framework while the decisions are still theirs to control.
This article is general information about UK corporate governance and is not legal advice. Specific advice should be taken on any particular set of facts.
Table of Legislation
Companies Act 2006
Companies (Miscellaneous Reporting) Regulations 2018, SI 2018/860
Bibliography
* Companies House, Annual Report and Accounts 2025 to 2026 (HC 477, 2026) <https://www.gov.uk/government/publications/companies-house-annual-report-and-accounts-2025-to-2026/companies-house-annual-report-and-accounts-2025-to-2026> accessed 20 August 2026
* Department for Business and Trade, Business Population Estimates for the UK and Regions 2025: Statistical Release (DBT, 2 October 2025) <https://www.gov.uk/government/statistics/business-population-estimates-2025/business-population-estimates-for-the-uk-and-regions-2025-statistical-release> accessed 20 August 2026
* Financial Reporting Council, The Wates Corporate Governance Principles for Large Private Companies (FRC 2018) <https://www.frc.org.uk/library/standards-codes-policy/corporate-governance/the-wates-corporate-governance-principles-for-large-private-companies/> accessed 20 August 2026
* Financial Reporting Council, UK Corporate Governance Code 2024 (FRC 2024) <https://www.frc.org.uk/library/standards-codes-policy/corporate-governance/uk-corporate-governance-code/> accessed 20 August 2026
* Financial Reporting Council, ‘Provision 29 Mythbuster’ (FRC, 29 January 2026) <https://www.frc.org.uk/docs/9097/html/> accessed 20 August 2026
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[1] Financial Reporting Council, ‘Provision 29 Mythbuster’ (FRC, 29 January 2026) <https://www.frc.org.uk/docs/9097/html/> accessed 20 August 2026.
[1] Companies Act 2006, ss 171–177.
[2] ibid s 172(1).
[3] Financial Reporting Council, UK Corporate Governance Code 2024 (FRC 2024) <https://www.frc.org.uk/library/standards-codes-policy/corporate-governance/uk-corporate-governance-code/> accessed 20 August 2026.
[4] ibid provision 29.
[5]Companies (Miscellaneous Reporting) Regulations 2018, SI 2018/860, reg 26; Financial Reporting Council, The Wates Corporate Governance Principles for Large Private Companies (FRC 2018) <https://www.frc.org.uk/library/standards-codes-policy/corporate-governance/the-wates-corporate-governance-principles-for-large-private-companies/> accessed 20 August 2026.
[1] Department for Business and Trade, Business Population Estimates for the UK and Regions 2025: Statistical Release (DBT, 2 October 2025) <https://www.gov.uk/government/statistics/business-population-estimates-2025/business-population-estimates-for-the-uk-and-regions-2025-statistical-release> accessed 20 August 2026.
[2] Companies House, Annual Report and Accounts 2025 to 2026 (HC 477, 2026) <https://www.gov.uk/government/publications/companies-house-annual-report-and-accounts-2025-to-2026/companies-house-annual-report-and-accounts-2025-to-2026> accessed 20 August 2026.
