Corporate Governance Changes: are you ready?
Rachael Maunder looks at the changes brought about by the Small Business, Enterprise and Employment Act 2015.
The Small Business, Enterprise and Employment Act 2015 (the “Act”) was passed in March 2015 with the overall aim of enhancing transparency of UK company ownership and control structures and to help provide a fuller picture of both the legal and beneficial ownership of businesses. Implementation of the changes brought about by the Act will happen over a period of time with the most significant of these due to take place in 2016. Do not be fooled by the Act’s title, the changes apply to all unlisted UK companies not just small businesses and it is the responsibility of the company, and its directors, to ensure compliance with the new rules.
Summary of key changes
The PSC or “persons with significant control” register is a new statutory register which companies and limited liability partnerships (“LLPs”) will be required to keep. Anyone, whether a holding company or an individual, who ultimately owns or controls more than 25% of the company’s shares or voting rights, or who otherwise exercises control over the company or its management must be listed on the register.
At present, companies record only the immediate legal owners of their shares but under the new regime there will be an obligation on companies to look through the legal owners and to identify relevant persons who ultimately have significant control of the company. The requirement is to ‘take reasonable steps to identify’ every person who has, directly or indirectly, significant control over the company. Although not exhaustive reasonable steps will include considering all documents and information already available to the company and any interests in the company’s shares held by individuals, legal entities, trusts or firms (without legal personality). Companies should also consider whether there is evidence of any joint arrangements or evidence of rights held through a variety of means that might ultimately be controlled by the same person or connected persons such as a husband and wife.
The PSC register will be available for public inspection and will be searchable online via Companies House. The key implementation dates for this are:
- a PSC register must be kept by the company or the LLP from 6 April 2016 on its statutory books; and
- the PSC information must be filed with Companies House from 30 June 2016.
Companies should be aware that non-compliance with the new regulations can lead to criminal sanctions against the company itself and/or its directors.
Confirmation statement replaces annual return
Companies are currently obliged to file a return annually with Companies House providing information about the company, its shareholders, directors and share capital. From June 2016, the new confirmation statement will replace the annual return and will not require previously delivered information to be repeated. Instead a confirmation will be given by the company that all specified information has either been delivered to Companies House as required during the year (as and when the information becomes available) or details of relevant changes are provided with the confirmation statement.
Unlike the current position with the annual return, there will not be a set date each year on which the confirmation statement needs to be made. Although, it can be made at any time, no more than 12 months must elapse between confirmation statements and once a confirmation statement has been made, the next 12 month period starts to run.
At present, all companies are required by law to keep certain registers. These include the register of members, register of directors, register of directors’ residential addresses and register of secretaries. These registers must be kept up to date and held at the company’s registered office (or at another address notified to Companies House).
From June 2016 companies will have the option to elect to keep the information that must be recorded in these statutory registers on the public register maintained by Companies House instead of maintaining their own separate registers. Whilst the change is designed to reduce the administrative burden on companies you will still have to notify Companies House of any relevant changes to the information held by them.
After making an election, the company will be responsible for keeping any historical register entries and making them available for inspection. The company would no longer be required to update its own register but would have to supply to Companies House the necessary information to keep the register up to date. The company will need to put a note in its own register stating that an election is in force, when that election took effect and indicating that up-to-date information about its members is available for public inspection at Companies House. If the company subsequently opted to keep its own register again, it would resume responsibility for doing so only from the date of that election. Companies House would continue to keep the register for the period during which the company opted not to keep it itself. Anyone wishing to inspect the register for that period would still have to access the information via Companies House. On resuming responsibility for its own register, the company would be required to include another note in that register stating the date on which it did so and that the information prior to that date is available for public inspection on the central register kept by Companies House.
If a company wishes to take advantage of this change a number of steps will need to be taken including obtaining prior unanimous shareholder approval before making such election and formally notifying Companies House.
Other key changes
- A company will no longer be able to appoint corporate directors (subject to some limited exceptions). All directors must therefore be a natural person. It is anticipated that this change will come into effect from October 2016 but the exact date is yet to be confirmed. We would therefore recommend that all existing corporate director appointments are terminated before this date;
- The use of bearer shares has now been abolished;
- There has been an extension of directors’ statutory duties to shadow directors; and
- The period for striking off a company (under the voluntary strike off procedure) has been shortened by four weeks reducing it from three to two months.
If you would like further advice on any of the above points or to discuss how they impact on your business please do not hesitate to contact Rachael Maunder in our Company Secretarial team.