Every company that must prepare a strategic report and does not qualify as medium sized must include a section 172(1) statement in it, describing how the directors had regard to the six factors in section 172(1)(a) to (f) of the Companies Act 2006 while promoting the success of the company. In practice that means large companies, including large subsidiaries, and an unquoted company must also put the statement on a website. The statement is judged on whether it shows real board decisions, not on whether it repeats the wording of the Act.

Which companies must include a section 172 statement?

The requirement sits in section 414CZA of the Companies Act 2006. Subsection (1) says the strategic report for a financial year must include a statement describing how the directors have had regard to the factors in section 172(1)(a) to (f) when performing their duty under section 172. Subsection (2) switches the requirement off if the company qualifies as medium sized for that year under sections 465 to 467.

So two filters apply. First, the company must be preparing a strategic report at all, which excludes companies entitled to the small companies exemption under section 414B. Second, it must not qualify as medium sized. Under section 465(3), as amended for financial years beginning on or after 6 April 2025, a company is medium sized in a year when it meets two or more of these limits:

Test Medium sized limit
Turnover Not more than £54 million
Balance sheet total Not more than £27 million
Average number of employees Not more than 250

Section 465(2) applies the usual two year rule: a company only moves into or out of a size category once the conditions are met, or failed, in two consecutive years. The FRC’s Guidance on the Strategic Report (February 2026), paragraph 10.2, summarises the result simply: the statement is required of all large companies. The rules were introduced by the Companies (Miscellaneous Reporting) Regulations 2018 and apply to financial years beginning on or after 1 January 2019.

Do public companies and subsidiaries get any relief?

Not usually. Section 467 says a public company, an authorised firm carrying on a regulated activity, an electronic money issuer and a member of an ineligible group cannot take advantage of the provisions for medium sized companies. The FRC’s February 2026 scoping tables describe a medium sized company as one meeting both the size limits and the eligibility conditions in sections 465 to 467.

Subsidiaries are caught in their own right. Paragraph 10.3 of the FRC guidance says a separate statement is required for every large company in a group, and there is no exemption for parent or subsidiary companies. Paragraph 10.4 says the statement is prepared at individual company level, although a parent preparing a group strategic report should, where appropriate, explain how it had regard to the section 172 factors for the group as a whole. Paragraph 10.5 adds that subsidiary directors owe the duty to their own company, so even where policies are set centrally they should address what is specific to that company.

What does the law require the statement to cover?

The statement must describe how the directors had regard to each of the factors in section 172(1):

  • the likely consequences of any decision in the long term;
  • the interests of the company’s employees;
  • the need to foster business relationships with suppliers, customers and others;
  • the impact of the company’s operations on the community and the environment;
  • the desirability of maintaining a reputation for high standards of business conduct; and
  • the need to act fairly as between members of the company.

The Act does not prescribe a format. Paragraph 10.10 of the FRC guidance says the statement must be separately identifiable, but information elsewhere in the strategic report can be incorporated into it by cross reference. How a board should evidence the duty itself in minutes is covered under the duty to promote the success of the company.

What should a useful statement actually say?

The FRC guidance is the main reference. Paragraph 10.12 says the statement should focus on issues of strategic importance, with disclosure proportionate to the size and complexity of the company. Paragraph 10.13 suggests three building blocks:

  1. the issues, factors and stakeholders the directors consider relevant, and how they formed that view;
  2. the main methods the directors used to engage with stakeholders and understand the issues; and
  3. the effect of that regard on the company’s decisions and strategies during the year.

The most useful part is usually the third. Paragraphs 10.26 and 10.27 suggest identifying the principal decisions the board took in the year, how the section 172 factors were weighed, and, where one group’s interests were preferred over another’s, how the directors balanced them. Paragraph 10.29 asks for consistency between the principal decisions described and the business review elsewhere in the strategic report. Paragraphs 10.30 to 10.35 treat capital allocation and dividend decisions as typical principal decisions, and paragraphs 10.36 to 10.38 suggest explaining the culture the board has set and what it considers important to its reputation for good conduct.

The FRC Lab’s 2020 tips add practical points: be specific and avoid box ticking, explain why particular stakeholders were treated as key, include difficulties and trade offs as well as positives, link stakeholder metrics such as customer satisfaction or supplier payment performance to the statement, and start collecting examples during the year rather than at the year end.

Where does it go, and must it be published online?

The statement is part of the strategic report, so it is approved by the board and signed on its behalf by a director or the secretary under section 414D, and filed at Companies House with the rest of the report. Section 426B adds a website requirement for unquoted companies. The statement must be made available on a website maintained by or on behalf of the company that identifies the company, as soon as reasonably practicable, free of charge and without restriction, and kept there until the next year’s statement replaces it. Paragraph 10.39 of the FRC guidance confirms that a parent company’s website is acceptable if it identifies the subsidiary. Failure is an offence by every officer in default, punishable by a fine up to level 3 on the standard scale.

Paragraph 10.40 warns about cross references. If an unquoted company publishes only the statement, anything it incorporates by cross reference to other parts of the annual report must be included in the published version, or the online statement will be incomplete.

What does a workable statement look like?

Illustration only. A privately owned distribution company has turnover of £80 million and 400 staff, so it is large. In the year the board decided to close one of its three depots and move work to a new automated site.

A weak statement lists the six factors and says the board “has regard to all stakeholders in its decisions”. A useful one names the depot closure as a principal decision; explains that staff, the local community and two key customers were the stakeholders most affected; says the board reviewed a consultation report from the employee forum, a customer service impact assessment and the long term cost model; and records the outcome, for example that redeployment was offered to all affected staff, the closure was phased over six months to protect customer delivery times, and the dividend was held at the prior year level to fund the new site.

What mistakes come up most often?

  • Restating the law. A list of the six factors with a statement of compliance tells members nothing; the FRC Lab calls this out directly.
  • Dropping the statement on a size assumption. A public company, or a company in an ineligible group, cannot rely on the medium sized exemption; see section 467.
  • Incomplete online versions. Cross references that point to pages not published on the website.

Directors should remember that section 463 makes a director liable to compensate the company for loss caused by an untrue or misleading statement in the strategic report only where the director knew it was untrue or misleading or was reckless, or knew an omission was dishonest concealment of a material fact. Section 414D(2) makes it an offence for a director knowingly or recklessly to approve a non compliant strategic report. The wider content of the report is covered in the strategic report.

Is the requirement about to change?

Two changes are worth knowing. For financial years beginning on or after 6 April 2025, the Companies (Accounts and Reports) (Amendment and Transitional Provision) Regulations 2024 removed Part 4 of Schedule 7 to the Large and Medium sized Companies Regulations, which had required separate directors’ report statements on engagement with employees, suppliers, customers and others. The section 172(1) statement in the strategic report was not affected. See what goes in a directors’ report.

Second, the Department for Business and Trade’s Modernising Corporate Reporting consultation, published on 7 September 2026 and closing on 30 November 2026, proposes replacing the section 172(1) statement with a baseline disclosure on resources and relationships, and confirms earlier commitments to exempt most medium sized private companies and certain wholly owned subsidiaries from the strategic report. These are proposals only. Until legislation is made, large companies should keep preparing the statement under section 414CZA. The underlying duty in section 172 is not part of the proposals, and remains one of the general duties of directors.

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Sources

Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 8 October 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.