The Small Business Enterprise and Employment Act 2015 (“SBEE 2015”) became law on 26 March 2015 and contains various measures designed to promote the UK as the world leader in providing somewhere to start, finance and grow a business.
In order to help achieve this goal, the SBEE 2015 contains reforms to provide greater transparency around ownership and control of companies along with new measures to simplify company reporting requirements.
Such measures will be coming into effect shortly and will have a major impact on how businesses currently operate their corporate governance.
Prohibition of corporate directors
With effect from October 2016, all directors will have to be natural persons rather than corporate or legal entities. Companies will be prohibited from appointing new corporate directors and by October any existing corporate directors must be removed and, if necessary to ensure board meetings can be quorate, replaced with natural persons. It is anticipated that certain exceptions to the prohibition will be established. Although in theory, swapping or removing a director should not be complicated process, there are some pitfalls which are often overlooked (for example minimum director requirements in articles of association) and so we do recommend therefore that clients plan ahead.
Abolition of annual returns
From June 2016 companies will no longer have to submit an annual return to Companies House. Instead they will need to confirm, at any time during a 12 month period by way of a confirmation statement, that all the required information has been delivered in the last 12 months.
Register of people with significant control
Most companies will be affected by this new requirement, the purpose of which is to make company ownership structures more transparent so that controlling or significant shareholders can no longer hide behind trusts, offshore companies or other cloaking mechanisms designed to hide their true identities.
From April 2016 companies must maintain a register of people with significant control (“PSC”) over the company and from June 2016 must make this register public by including it in their annual confirmation statement which will be available to view at Companies House and searchable by individual and company name. It follows that the SBEE 2015 places obligations on the directors of companies to take steps to identify PSCs. Companies that fail to take the necessary steps to identify relevant shareholders and officers in default may be guilty of criminal offences.
An individual will be classed as a PSC if they (either alone or with others) meet at least one of the following five conditions:
- directly or indirectly hold more than 25% of the company’s nominal share capital;
- directly or indirectly control more than 25% of the votes of shareholders at general meetings;
- directly or indirectly be able to control the appointment or removal of a majority of directors the board;
- actually exercise, or have the right to exercise, significant influence or control over the company; or
- actually exercise or have the right to exercise significant influence or control over any trust or firm (which is not a legal entity) which has significant control (under one of the four conditions above) over the company.
If it is a legal entity rather than a person who meets the conditions, they are known as a relevant legal entity or “RLE”. Once on the register, the PSC/RLE has an obligation to provide certain information to the company.
Anyone who wishes to inspect or obtain a copy of a PSC register has to give to the company their name, address and the purpose for which the information will be used. Within five days of the request, the company must either comply with it or apply to the court for an order to deny the request on the grounds that the request is not for a proper purpose.
For more information about the issues raised in this article or to find out more about how the Corporate team can help you please contact Robert Rice on 0118 952 7263 or email [email protected].
Consistent with our policy when giving comment and advice on a non-specific basis, we cannot assume legal responsibility for the accuracy of any particular statement. In the case of specific problems we recommend that professional advice be sought.