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Legislation Update: Changes to UK Company Law - Small Business, Enterprise and Employment Act 2015 Receives Royal Assent

Legislation Update: Changes to UK Company Law - Small Business, Enterprise and Employment Act 2015 Receives Royal Assent

Tuesday 14th April 2015

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Corporate Matters - Issue 7

The Small Business, Enterprise and Employment Act 2015 (the “Act”) received Royal Assent on 26 March 2015 and will be implemented over the coming months. The Act covers a wide range of matters, including changes to company law that will not only have a significant practical impact on a lot of companies, but may also affect how a company’s ownership is structured in the future. Some of those changes are discussed in more detail below.

Register of People with Significant Control

The highest profile change to company law implemented by the Act is to introduce the requirement that companies (but not limited liability partnerships) will be required to maintain a public register of people with significant control (“PSC”) from 1 January 2016. The only companies that, as it stands, will be exempt are companies that are already subject to rule 5 of the Disclosure and Transparency Rules, which in practice means that most companies listed in the UK will be exempt.

Broadly speaking, an individual will be a PSC if they satisfy one of the following:

  1. holding (directly or indirectly) more than 25% of the nominal value of the shares;

  2. holding (directly or indirectly) more than 25% of the voting rights;

  3. having the right (directly or indirectly) to appoint or remove a majority of the board;

  4. having the right to exercise, or actually exercise, “significant influence or control” over the company (it is intended that guidance will be issued about the meaning of this phrase at some point in the future); or

  5. having the right to exercise, or actually exercise, significant influence or control over a trust or firm (which in itself isn’t a legal entity) that satisfies any of (1) to (4) above.

Companies will be obliged to investigate PSCs and obtain the necessary information about them. PSCs will themselves be under an obligation to provide companies with the relevant information, although those obligations won’t be triggered unless a company has first failed to meet its own obligations.

The details to be included in the register of PSCs that are individuals include name, service address, country of usual residence, nationality, date of birth and usual residential address. The register must also include the date on which someone became a PSC and the nature of the control (meaning which of the qualifying criteria applies). Residential addresses of individuals won’t be made publicly available.

There are further provisions in place so that, if an individual (“X”) is a PSC of company A, which in turn would (if it was an individual) be a PSC of company B, the PSC register of company B will refer to company A rather than X, as long as company A is itself subject to either the Act or rule 5 of the Disclosure and Transparency Rules.

A company’s PSC register must be kept available for inspection at a company’s registered office, although private companies have the option to maintain the register through Companies House rather than maintain a separate register itself. This may well be more convenient for a lot of companies, although it’s worth noting that maintaining the register at Companies House will mean that exact dates of birth of PSCs will be publicly available, which otherwise wouldn’t be the case.

Company Filings

Under the Act annual returns will, from April 2016, no longer be required. Instead a company will be required to deliver a statement confirming that the company has filed any change to certain information that it was required to file in the relevant period. That confirmatory statement will need to be provided at least once in every 12 month period, but a company can provide statements more often should they wish.

The information that is subject to the confirmatory statement is registered office, registers of officers and (if applicable) PSCs, obligations arising out of the decision to use the central register (about which please see below), and where a company keeps certain of its records. The confirmatory statement must also include details of any changes to a company’s principal business activities, its share capital, its shareholders and (if applicable) its PSC register.

A particularly welcome change is that, also from April 2016, statements of capital (relating to shares), which have caused a fair amount of confusion since their introduction under the Companies Act 2006, will no longer need to specify the amount paid and unpaid on each share; instead they will just need to specify the aggregate unpaid amount on the total number of shares.

Central Register

From April 2016 a private company will have the option to maintain certain of its statutory registers on the public register through Companies House, rather than having to maintain statutory registers that it holds itself. The relevant registers include those of members, directors, director residential addresses and secretaries (and also of PSCs). Registers of charges and share transfers are not included in this list.

It is worth noting that, before maintaining the register of members in this way, all of the company’s members must give their prior consent.

Dates of Birth

From October 2015 the public record will no longer show the day of the month in which an individual was born (it will still show the month and the year). Companies will, however, still be required to file the exact date of birth, and include that date in their register of directors or PSCs (as relevant).

In practice it may take a while for many individuals to reap the benefit of this element of the Act, as the date of birth will not be removed from historic filings, and if a company chooses to maintain its PSC register through Companies House then the full date will be publicly available in any case.

Appointment of Directors

The Act simplifies the process to have directors registered as having been appointed with Companies House. Instead of including a consent to act (which in practice often entailed obtaining two signatures on the relevant form or obtaining additional pieces of personal information if filing online), an appointment will now just contain a confirmation by the company that the director has so consented.

Companies House will write to each newly appointed director, who will have the right to object to the appointment if indeed they did not consent.

Corporate Directors

From October 2015 there will be a general prohibition on a company having a corporate director. However, the debate as to exceptions to that general rule is ongoing – it is almost certain that the prohibition will not be universally applicable.

If any corporate directors (who are subject to the prohibition) are not removed as directors of a company by October 2016 then they will automatically cease to be directors from then.

Shadow Directors

A shadow director is someone who is not officially appointed as a director of a company but in accordance with whose directions or instructions the official directors are nonetheless accustomed to act. Under the Act shadow directors will be subject to the director duties prescribed in the Companies Act.

Bearer Shares/Share Warrants

From 26 May 2015 a company will no longer be permitted to issue bearer shares. Further, from that date holders of existing bearer shares will only have a nine month window in which to surrender their bearer shares in return for registered shares, failing which a company will be required to apply to court to have the bearer shares cancelled.