02 Feb Elemental Briefing – Small Business, Enterprise and Employment Act 2015
On 26 March 2015, the Small Business, Enterprise and Employment Bill received Royal Assent and the Department for Business, Innovation & Skills (“BIS”) has announced that the new company transparency and filing provisions will be implemented on a staged basis starting from 26 May 2015.
The Small Business, Enterprise and Employment Act 2015 (the “Act“) covers a variety of aspects and in this briefing we will look at some of the key areas that are likely to affect our clients.
Register of Persons with Significant Control
Going forward, companies will now be required to keep a register of persons with significant control over the company (the “PSC Register”) and this will become one of the statutory registers that every company is required to maintain under the Companies Act. This part of the Act is due to come into force in January 2016.
A person with significant control over the company is defined as an individual who (either alone or as one of a number of joint holders of the share or right in question) meets one or more of the following conditions:
- an individual who holds, directly or indirectly, more than 25% of the shares in the company;
- an individual who holds, directly or indirectly, more than 25% of the voting rights in the company;
- an individual who holds the right, directly or indirectly, to appoint or remove a majority of the board of directors of the company;
- an individual who has the right to exercise, or actually exercises, significant influence or control over the company (draft statutory guidance on this condition is expected in October 2015); and
- a trust or firm (without legal personality) that meets any of the above conditions and an individual who has the right to exercise, or actually exercises, significant influence or control over the activities of that trust or firm.
The Act provides further interpretive provisions and further statutory and non-statutory guidance will be published over the coming year.
Registrable and non-registrable PSCs
The Act distinguishes between registrable and non-registrable individuals and relevant legal entities. An individual or relevant legal entity is non-registrable if they do not hold any interest in the company except through one or more other legal entities over each of which they have significant control and each of which is a ‘relevant legal entity’. A ‘relevant legal entity’ is a body corporate or firm with legal personality that would have been a PSC if it was an individual and which is subject to its own disclosure requirements under the Act, DTR5 or as specified further in regulations. A registrable legal entity must also be included on the PSC register.
The practical result of this is that if a company is wholly owned by another company which maintains its own PSC register, the first company does not need to record those PSC individuals who indirectly control the first company. Instead the company will simply record its parent company in its PSC register and reference can be made to the PSC register of the parent to identify the ultimate PSCs.
Investigating and supplying information
In the vast majority of cases, it is assumed that a company will know who the Persons exercising significant control will be. However, express duties have been imposed by the Act on the company to investigate, obtain and update information on registrable persons, as well as on registrable persons to supply information.
A criminal offence is committed by the company and every officer in default of the relevant provisions, which is punishable by imprisonment or a fine.
Abolition of bearer shares
The Act prohibits the creation of bearer shares absolutely and this provision is due to come into force on 26 May 2015.
Existing bearer shares must be cancelled or converted into non-bearer shares during a transitionary period. If further advice is required in relation to this, please get in touch.
Corporate directors and shadow directors
The Act requires all directors of UK companies to be natural persons and prohibits the appointment of corporate directors. BIS is currently consulting on potential exceptions for this rule, although they are expected to be fairly minimal in nature.
Any existing corporate directors will cease to be directors one year after the coming into force of these provisions, which is due in October 2015.
The Act also makes a change to make clear that the general duties of directors (set out in sections 170-177 of the Companies Act 2006) also apply to any shadow directors.
Company registers and filing requirements
The Act provides (from April 2016) the ability for a private company to hold certain information normally on the statutory registers on the public record at Companies House, this includes the following:
- register of members;
- register of directors;
- register of director’s residential addresses;
- register of secretaries; and
- PSC register.
In order to take advantage of these provisions, a company must make a positive election and all members of the company must assent to the election. The public register is then prima facie evidence of material that would have otherwise been on the register of members if the election had not been made.
The Act will abolish the formal annual return and it will be replaced with an annual confirmation statement that must be provided within 14 days of the end of the relevant review period. This confirmation statement includes much of the information that was previously on the annual return.
This briefing is intended as a general update only. It is not comprehensive and it is not intended to be relied upon. If you are in any doubt regarding your legal obligations or any matter referred to in this briefing you are advised to obtain independent expert advice. No liability is accepted in respect of the contents of this briefing.