The UK's Small Business, Enterprise and Employment Act 2015 received Royal Assent on 26
March 2015, and makes important changes to the law applying to UK companies.
Among other things, the new law is designed to address the government's key
"Transparency and Trust" proposals, aimed at deterring illegal activity such as
money-laundering and tax evasion.
To allow organisations time to prepare, there is a staged timetable for
implementation. The new rules that are likely to cause the most upheaval for
companies, including the new requirement to keep a register of "people with
significant control", will not come into force until 2016.
Key changes and dates
The main changes to UK company law, and proposed implementation dates, are as
- "Bearer shares" to be prohibited (26 May 2015, with a nine months'
transitional period for existing bearer shares).
- Corporate directors to be prohibited, with exceptions (October 2015, with
a 12 months' transitional period for existing corporate directors).
- Unquoted companies to keep a public register of people with significant
control (January 2016). Details of these people to be provided to Companies
House annually (April 2016).
- Annual "confirmation statements" to replace annual returns (April 2016).
- Private companies to be able to keep their statutory registers (e.g.
registers of members and directors, and the new register of people with
significant control) at Companies House, instead of having to keep their own
registers (April 2016).
The Act also extends the grounds for disqualifying directors and introduces
other provisions designed to make it easier to hold directors to account –
including so-called "shadow directors".
Register of people with significant control
The most controversial change to UK company law is to require individuals
that have "significant control" (PSCs) over an unquoted UK company to be named
on a public register.
The basic test for significant control will be holding or controlling more
than 25% of the company's shares or voting rights or having the power to appoint
or remove a majority of the board (whether directly, or indirectly, via a
majority stake in another company). But there are also broader (and more
problematic) tests, such as situations where an individual has "significant
influence or control" over the company, or exercises control through a
partnership or trust. The government is due to issue guidance on what is meant
by "significant influence or control" by October 2015.
The PSC register
A UK company will have a responsibility to identify and keep up-to-date a
register of its PSCs, and PSCs will have corresponding duties to disclose their
identities to the company. Anyone will be able to inspect this register if they
have a "proper purpose". The company must also provide the information on its
PSC register to Companies House, where it will be publicly available. Initially,
this will be on an annual basis, but from 2017 the government may increase the
frequency for Companies House filings, to bring the new rules in line with the
EU Fourth Money Laundering Directive.
A company's PSC register will have to include similar details to those on its
register of directors, along with the nature of a PSC's control over the
company. Although PSCs' residential addresses will be protected in the same way
as for directors, it is likely that there will only be limited circumstances
when any other PSC information can be withheld from public disclosure (such as
where individuals are at serious risk of violence or intimidation as a result of
a company's activities, although the formal rules have not been published
A company can impose sanctions if its PSCs do not comply with their
disclosure obligations (e.g. loss of voting rights and transfer restrictions),
and, unlike the similar regime for public companies that already exists, the
company will be able to impose these sanctions without having to go to court.
There will also be criminal penalties for the company, its directors and
secretary, and PSCs, if they do not comply with the new rules.
The burden will largely fall on private companies, as listed companies
(including AIM companies) will be exempt, on the basis that the disclosure
obligations in DTR 5 already apply to their shareholders. However, the new rules
are more onerous for private companies, in that they must try to identify their
significant controllers by serving information requests. Currently, there is no
equivalent obligation for listed companies.
The new regime is also expected to be extended to limited liability
partnerships (LLPs), but formal proposals for this have not been published
On the current timetable, companies must start to keep a PSC register from
January 2016, and they will need to file their PSC information with Companies
House annually from April 2016. The government plans to provide further guidance
on implementing the PSC register.
As part of restricting the use of corporate structures to hide illegal
activity, the Act prohibits companies and other corporate entities from being
appointed directors. The ban is expected to start from October 2015, and
companies affected will then have a one-year transitional period to appoint
replacement directors. However, in recognition that corporate directors are
often appointed for legitimate reasons (such as to reduce paperwork), the
government is proposing to introduce some exceptions to the general ban. It is
on whether a corporate director should be permitted if all its directors (or
equivalent officers) are natural persons and their details are available on a
public register (e.g. at Companies House).
A technical change in the Act appears to increase the extent to which the
general duties of directors apply to so-called "shadow directors" (those not
formally appointed as directors, but whose orders the board follows). The change
applies from 26 May 2015. It is unclear how it will operate in practice, but the
advice to investors continues to be to avoid crossing the line between board
engagement and board control. The Act gives the government power to make further
rules in this area, but no proposals have been published as yet.
Insolvency and directors' disqualification
The Act also includes a number of measures aimed at making it easier to
pursue directors who do not comply with their obligations. Liquidators and
administrators will be able to sell law suits against directors, such as
wrongful or fraudulent trading claims, and apply for creditor compensation
orders against disqualified directors. The secretary of state can seek to
disqualify directors for misconduct in connection with foreign companies, and
the courts will be able take into account a wider range of factors when deciding
whether to ban a director. The secretary of state will also have three years,
instead of two, to bring a disqualification action against a director following
formal insolvency of the company.
Other company law changes
Companies will no longer be able to create "bearer shares", which have been
criticised as they allow shareholders to remain anonymous. The ban will apply
from 26 May 2015, and holders of existing bearer shares will have nine months
from then to swap their shares and be listed on the shareholder register, after
which the shares will be cancelled. Companies with bearer shares must notify the
holders as soon as possible of the consequences if they do not surrender their
shares. Bearer shares are now fairly uncommon, so this is unlikely to affect
Measures aimed at simplifying Companies House filings will see the annual
return replaced with an annual check-and-confirm "confirmation statement", and
make statements of capital easier to complete. Companies will need to adjust to
the new annual reporting regime, but one benefit is that it should be easier to align the timing of the preparation of the company's confirmation statement
with its annual accounts. These changes are scheduled to come into force in
Private company registers
Private companies will be allowed to keep their registers of shareholders,
directors, secretaries and PSCs at Companies House, instead of having to
maintain their own separate registers, in order to cut down on administration.
While in principle this sounds helpful, it may be more suitable for small
owner-managed businesses whose information changes infrequently and/or where
there are reduced confidentiality concerns. This option is expected to be
available from April 2016.
Dates of birth
The day element of directors' dates of birth at Companies House will be
protected from public disclosure (an anti-fraud and data protection measure).
This is expected to come into force in October 2015. However, the new rules do
not appear to benefit existing directors, as they do not require Companies House
to remove historic data. Protection will also not be available where a private
company chooses to keep its register of directors at Companies House. Similar
rules will apply to PSCs' dates of birth.
Resolving director and registered office disputes
On appointment, directors will not have to counter-sign the usual Companies
House form to indicate their consent. Instead, Companies House will notify
directors they have been registered. They will then have the chance to object
and have their names removed if a mistake or bogus registration has been made.
These provisions are expected to come into force in October 2015, together with
provisions that will allow Companies House to alter the registered office of a
company where use of the address is disputed.
Striking off companies
The Act shortens the time period required to strike off a dormant company.
This is expected to come into force in October 2015.
This bulletin focuses on the changes to company law, but other key changes
impacting on companies will include new rules obliging them to regularly publish
information about their practices and policies for paying suppliers (expected to
apply to large companies and LLPs only, on a half-yearly basis, from April
2016), and rules requiring employers with 250 employees or more to report
information on gender pay gaps. The Act also includes other insolvency-related
and employment measures.
Overall, while there are some changes that businesses will welcome, the new
rules will increase the compliance burdens on companies when it comes to
identifying and disclosing their significant controllers, particularly those
companies with complex share ownership structures. Although in a number of areas
the government still needs to confirm its proposals and to publish draft
regulations or guidance, companies and investors should begin now to prepare for
the changes, where they are not already doing so.