Under section 190 of the Companies Act 2006, a company cannot buy a substantial non cash asset from a director, or sell one to a director, unless the members approve the deal by resolution or it is made conditional on their approval. The same applies to directors of its holding company and to people connected with any of those directors. An asset is substantial if it is worth more than £100,000, or more than £5,000 and more than 10% of the company’s net assets shown in its latest statutory accounts.

What does section 190 cover?

Section 190(1) catches arrangements in either direction: a director or connected person acquiring a substantial non cash asset from the company, or the company acquiring one from them, directly or indirectly. It applies to directors of the company and of its holding company, and to persons connected with either. The explanatory notes say these sections replaced sections 320 to 322 of the Companies Act 1985.

A non cash asset is defined in section 1163 as any property or interest in property other than cash, which includes foreign currency. A transfer or acquisition of a non cash asset includes creating or ending an interest in or right over property, and discharging a person’s liability other than a liability for a liquidated sum. Common examples are:

  • a director buying the company car, van or equipment;
  • the company buying or leasing premises owned by a director or a director’s spouse;
  • the company acquiring a business, intellectual property or shares from a director;
  • a director’s family company buying assets from the company.

When is an asset substantial?

Section 191(2) treats an asset as substantial if its value exceeds 10% of the company’s asset value and is more than £5,000, or exceeds £100,000. Under section 191(3), asset value means net assets by reference to the most recent statutory accounts, or the called up share capital if no statutory accounts have yet been prepared. The most recent accounts are those whose time for sending to members is most recent, not the latest management figures. Value is tested when the arrangement is entered into (section 191(5)).

Net assets in latest statutory accounts 10% of net assets Approval needed for an asset worth more than
£20,000 £2,000 £5,000
£300,000 £30,000 £30,000
£2,000,000 £200,000 £100,000

Where net assets are nil or negative, any asset worth more than £5,000 will exceed 10% of them. Section 190(5) prevents splitting: an arrangement involving several non cash assets, or one of a series, is tested on the aggregate value of all the assets involved.

Who counts as a connected person?

Section 252 gives an exhaustive list. It includes members of the director’s family as defined in section 253: a spouse or civil partner, a person the director lives with as partner in an enduring family relationship, the director’s children and step children, that partner’s children under 18 who live with the director, and the director’s parents. Brothers, sisters, grandparents and other relatives are not on the list.

A body corporate is connected if, under section 254, the director and persons connected with them together hold at least 20% of its equity share capital by nominal value, or control more than 20% of its voting power. Trustees of trusts that can benefit the director or connected persons (other than employee share and pension schemes), and the director’s business partners, are also connected. Under section 252(3) a person who is also a director of the company is not a connected person, because they are caught directly as a director.

Which transactions do not need approval?

  • Anything a director is entitled to under their service contract, and payments for loss of office (section 190(6)). See our guide to directors’ service contracts.
  • A transaction with a person in their character as a member of the company (section 192(a)).
  • Transactions between a holding company and its wholly owned subsidiary, or between two wholly owned subsidiaries of the same holding company (section 192(b)).
  • Arrangements by a company being wound up, other than in a members’ voluntary winding up, or in administration (section 193).
  • Transactions on a recognised investment exchange through an independent broker (section 194).

Under section 190(4), the members of a company that is not UK registered, or that is a wholly owned subsidiary, do not need to give approval. Approval from a holding company’s members may still be needed under section 190(2) where the director, or the person they are connected with, is a director of that holding company.

How is member approval given?

Section 190 does not specify the type of resolution, so under section 281(3) an ordinary resolution is required unless the articles demand more. A private company can pass it as a written resolution under section 288. If the director or connected person is a director of the holding company, or connected with one, the holding company’s members must also approve (section 190(2)).

The company can sign a contract that is conditional on approval. Section 190(3) means the company is not liable if the approval required is not obtained, and the explanatory notes confirm this was introduced to allow conditional contracts. Section 190 does not itself bar a director who is a shareholder from voting on the resolution, unlike ratification under section 239, though the articles may impose restrictions.

Approval interacts with the general duties. Under section 180(2), once Chapter 4 approval is given the director need not also comply with the conflicts duty in section 175 or the duty on third party benefits in section 176. The duty to declare the interest to the board under section 177 still applies; see our guide to declaring an interest in a transaction.

What happens if approval is not obtained?

Under section 195 the arrangement and any transaction under it are voidable by the company, unless restitution is no longer possible, the company has been indemnified for its loss, or avoidance would affect rights acquired in good faith, for value and without notice by someone not party to the deal. Whether or not it is avoided, the director, the connected person, the director connected with that person, and any other director who authorised the arrangement must account for any gain they made and are jointly and severally liable to indemnify the company for its loss.

Two defences exist. A director whose connected person contracted is not liable if they took all reasonable steps to secure compliance, and the connected person and authorising directors are not liable if they did not know the relevant circumstances at the time. Under section 196 the members can affirm the arrangement by resolution within a reasonable period, after which it can no longer be avoided.

How does this work in practice?

Illustration only. A company’s latest statutory accounts show net assets of £60,000. A director wants to buy the company van for £8,000. Ten per cent of net assets is £6,000, and £8,000 exceeds both that and £5,000, so the sale needs a members’ resolution. The board agrees the sale subject to approval, the director declares their interest, and a written resolution is circulated. In the same year the director’s wife buys some old office furniture for £1,500, which is below £5,000 and needs no approval. If the company later bought the director’s flat for £150,000, approval would be needed whatever the net assets, because it exceeds £100,000.

What mistakes do companies make?

  • Overlooking connected persons, especially spouses and family companies.
  • Testing each item separately when several assets are sold together or as a series.
  • Using management accounts instead of the most recent statutory accounts.
  • Forgetting that granting a lease or releasing a debt can be a non cash asset.
  • Completing first and trying to fix it later. Affirmation under section 196 must be within a reasonable period.
  • Assuming a sole director and shareholder is exempt. The approval is simple to give, but it should still be recorded as a written resolution.
  • Leaving the price outstanding without recording it on the director’s loan account.

Valuing the asset fairly also links to the wider duties covered in our guide to directors’ conflicts of interest.

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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.