The small business, enterprise and Employment Bill: Update
The Small Business, Enterprise and Employment Bill (the “Bill”) was first published in June 2014. The draft Bill, as amended on report, was published on 12 March 2015, with its third reading taking place in the House of Lords on 17 March. On 24 March the House of Commons approved the Lords’ final amendments and the Bill will now be sent for Royal Assent. This article summarises the key provisions of the Bill.
The Bill will insert a new provision into the Companies Act 2006 (“CA 2006”) requiring companies to maintain a register of people with “significant control” over the company. That register will be open to public inspection, although anyone requesting sight of the register will have to state the purpose for which the information will be used and the company may apply to the court to refuse access if the purpose is an improper one. This rule will apply to all companies, other than to an issuer to which Chapter 5 of the Disclosure and Transparency Rules applies (broadly, a company whose shares are admitted to trading on a regulated market in the UK). Private companies will have the option of maintaining the information on a public register at Companies House, rather than on a separately maintained register held by the company.
Not only will companies be obliged to maintain this register, they will also be obliged to investigate and gather the relevant information and to ensure it is kept up to date. Failure to do so will be a criminal offence, not only on the part of the company but also on the part of every officer of the company who is in default.
A person with “significant control” over a company is an individual who meets one or more of the following conditions:
- he/she holds, directly or indirectly, more than 25% of the shares in the company;
- he/she holds, directly or indirectly, more than 25% of the voting rights in the company;
- he/she holds the right, directly or indirectly, to appoint or remove a majority of the board of directors of the company;
- he/she has the right to exercise, or actually exercises, significant influence or control over the company (an expert panel is to be established to draft the statutory guidance on the meaning of “significant influence and control”); or
- the trustees of a trust or members of a firm that is not a legal entity meet one or more of the above conditions in their capacity as such, and the individual has the right to exercise, or actually exercises, significant influence or control over the activities of that trust or firm.
An individual will not be registrable on a company’s register of persons with significant control if he/she only holds an interest in the company through one or more legal entities over which he/she has significant control and which are subject to their own disclosure requirements. In that case, the legal entities will be noted on the company’s register and the individual will be noted on the register of those legal entities.
There is also a duty on those with significant control to provide their information to the company and to update such as necessary. Failure to comply with this requirement can lead to the company serving a restrictions notice on the relevant person. If such a notice is served, any transfer of the shares that are subject to that notice will be void and no rights may be exercised or dividends paid in respect of those shares.
Corporate directors and shadow directors
The Bill inserts a new provision into the CA 2006 requiring all company directors to be natural persons and prohibiting the appointment of corporate directors. Any appointment made in contravention of this provision will be void and it will be a criminal offence to breach it.
The legislation does provide for a transition period; any remaining corporate directors will cease to be directors one year after the provision comes into force, rather than immediately.
The Bill inserts a separate section into the CA 2006 to provide that the general duties of directors apply to shadow directors, to the extent they are capable of applying.
The Bill will remove from CA 2006 the requirement for a company to file an annual return. Instead, all companies will be required to deliver to Companies House at least once every twelve months a confirmation stating that the company has delivered all the information that it was required to deliver in the period to which the statement relates.
The information required to be delivered to Companies House includes details of a change of registered office and details of company registers relating to directors, company secretaries and people with significant control. In addition, when delivering a confirmation statement, the company must provide a statement of capital (unless there has been no change since the previous statement of capital), non-traded companies must provide certain information relating to shareholders (unless there has been no change in such information since the previous filing) and certain traded companies must provide certain information relating to shareholders who hold at least 5% of the issued shares of any class.
Option to use central register
The Bill will amend CA 2006 to give private companies the option of keeping the information recorded on their registers of members, directors and secretaries on a public register maintained by the Registrar of Companies. If they do so, they will no longer be required to maintain those registers separately.
Any election to keep members’ information on the central register must be approved by all members of a company. The company will be required to keep the members register that it held prior to making such election, but will not be required to update it for so long as the election remains in force.
It is proposed that the prohibition on corporate directors will come into force in October 2015. The requirement for companies to keep a register of persons with significant control will come into force in January 2016 and the confirmation statement will replace the annual return in April 2016.
This guide is for general information and interest only and should not be relied upon as providing specific legal advice. If you require any further information about the issues raised in this article please contact the author or call 0207 404 0606 and ask to speak to your usual Goodman Derrick contact.