Significant changes to corporate law, which are aimed at enhancing the transparency of UK companies (amongst other things), are scheduled to take place in the coming months. Whilst the provisions of The Small Business, Enterprise and Employment Act 2015 do appear to go some way to enhancing transparency, there are many who think that they will add to the administrative burden already placed upon companies. We focus on two changes which are likely to affect you.
By far, the most controversial of these changes concerns the Register of People with Significant Control ("PSC Register"). From January 2016, companies (except those which are publicly traded) will need to keep a register of people with "significant control" over the company. This information will be available on the public register at Companies House from April 2016.
The people who control a company can be different to those registered as shareholders. This means that the PSC Register may look very different to the register of shareholders and, in many cases, will make for much more interesting reading!
A person with significant control is defined as a person who meets one of the following conditions:
- holds, directly or indirectly, more than 25% of the shares in the company;
- holds, directly or indirectly, more than 25% of the voting rights in the company;
- holds the right, directly or indirectly, to appoint a majority of the board of directors of the company; and
- has the right to exercise or actually exercises a significant influence or control over the company.
The last of these conditions is problematic in that "significant influence or control" has not yet been defined. However, it is expected that the Government will issue guidance in October.
If the guidance confirms that this provision is a "catch all", as it appears to be, then the new register could create issues in any corporate structure which includes a UK company. For example, even if you use a Jersey company as the parent of a UK company in a group structure, it is hard to see that you will be able to avoid disclosing who is at the top of the chain if these people have "significant influence or control" over the UK company.
Watch this space for guidance!
The Act places an onerous obligation on companies to investigate and obtain information on those who have significant control over the company. If the company does not fulfil this obligation then both it and its directors commit a criminal offence, which is punishable by a fine or imprisonment. The Act also places a duty on registrable persons and entities to provide information to the company to ensure that the necessary information is recorded in the PSC Register.
Although the requirement to maintain a PSC Register does not come into force until January 2016, it is important that companies start considering whether they have any PSCs now. For the vast majority of companies, this should be a straightforward enough task but in some cases, for example where private equity players are involved, a great deal of information may need to be gathered and so it is important to start developing processes for obtaining such information now.
Ban on corporate directors
A less controversial, but no less significant, change relates to the ban on corporate directors (i.e. companies can no longer be the directors of other companies). Therefore, from April 2016, all directors will need to be natural persons (i.e. individuals). Companies who have corporate directors will have 12 months to appoint replacements. Otherwise corporate directors will automatically cease to be directors.
Given that there are a number of advantages to the use of corporate directors, the Government is currently considering exceptions to this rule. They are considering permitting a company to appoint a corporate director if:
- all the directors of the corporate director are individuals;
- the details of the individual directors of the corporate director are accessible through a public register.
It is hoped that these provisions will help prevent illegal activity as people can no longer hide behind legal entities.
Whilst it is early days to fully evaluate the impact that these changes will have, companies should begin preparing now, especially as some of the changes are expected to come into force relatively soon.