Important Changes to UK Company Law
By Peter Stevens
Posted: 16th March 2015 09:34The Small Business, Enterprise and Employment Bill completed its passage through Parliament in March 2015, and is expected to become law before the general election on 7 May 2015. It will come into force in various stages between July 2015 and April 2016.
The Bill is a substantial one (265 pages) with wide impact, but business owners and investors will be particularly interested in the provisions designed to make company ownership more transparent, and to reduce the regulatory burden on companies.
Transparency of company ownership
One of the overriding purposes of the Bill is to ensure the UK is seen as a trusted and fair place in which to do business. In the past, individuals have been able to hide behind corporate structures for money laundering, tax evasion and other criminal purposes, so the Bill contains a number of provisions designed to make company ownership more transparent.
The PSC register
The EU’s Fourth Money Laundering Directive, which will require companies to supply up-to-date information on their beneficial ownership to a central registry in the member state in which they are based, was expected to come into force in late 2015 or early 2016, but now appears to have been somewhat delayed.
Nevertheless, the Bill will require all UK companies to keep a register (the “PSC register”) of individuals who have significant control over the company. It is presently anticipated that companies will need to start keeping PSC registers from January 2016, and to file the information at Companies House as from April 2016.
The PSC register must be open to inspection by anyone without charge, and the information must be notified to Companies House and updated on an annual basis, where it will be freely accessible online and searchable by reference to the name of the company or the name of the individual.
An individual will have “significant control” over a company if, either alone or jointly with others, he directly or indirectly:
holds more than 25% of its nominal share capital;
controls more than 25% of the votes at general meetings;
can control the appointment or removal of a majority of the board of directors;
exercises, or has the right to exercise, significant influence or control over the company; or
exercises, or has the right to exercise, significant influence or control over any trust or firm which has significant control of the company as defined above.
The Secretary of State must produce further guidance on the meaning of “significant influence or control”, which will not be legally binding but will be taken into account by the courts.
The information to be included in the PSC register is the same as that currently required for company directors, namely the individual’s name, service address, country or state of usual residence, nationality, date of birth and usual residential address (although the residential address will be protected information and not publicly available). There will be some exceptions where the control is held indirectly through another company and the information is available on the PSC register of that company.
Companies will be required to take reasonable steps to investigate and identify any registrable individuals, to require them to supply and/or confirm the relevant information, and to keep the information up-to-date. Companies which fail to do so – and their officers, and individuals who fail to supply and/or confirm the relevant information – will commit a criminal offence, publishable by up to two years imprisonment or an unlimited fine.
Abolition of share warrants to bearer
With effect from two months after the Bill becomes law (i.e. from about July 2015), companies will be prohibited from issuing any more bearer share warrants.
There will be a nine month transitional period, when holders of any existing warrants can exchange them for registered shares. The company must give them notice of this no later than one month after the Bill becomes law, and again after eight months. All rights attached to the warrants (including voting and dividend rights) will be suspended from the end of month seven, and any agreement to transfer them after this date will be void.
During the three months following the end of the nine month transitional period, all companies which still have bearer share warrants outstanding will have to apply to the court for their cancellation.
Provided the court is satisfied that the bearers have been given due notice of their right to surrender the warrants, it will cancel them immediately; otherwise, it will suspend the order until two months after the bearers have been given notice, and cancel any warrants which remain outstanding at the end of that period.
The company will have to pay into court the amount (nominal and any premium) paid up on the cancelled warrants, plus any accrued dividends, and the bearers can claim the money within the following three years if they can show there were “exceptional circumstances” which prevented them from surrendering the warrants when first given notice of their right to do so; otherwise, the money will be forfeited to the Government.
There will be various criminal sanctions for companies and their officers who fail to comply with the above obligations, and companies with outstanding share warrants will not be able to apply for striking-off.
Abolition of corporate directors
Since October 2008, all companies have been required to have at least one director who is a natural person. As from October 2015, it will be an offence for a company to appoint any new corporate directors. Any existing ones still in office 12 months after the Bill becomes law will automatically be removed.
The Bill allows the Secretary of State to make regulations setting out some exceptions but, if there are any, they are likely to be very limited.
Companies are required to file various documents with the Registrar of Companies, most of which can be searched by the public online. Overseas investors from civil law countries sometimes misunderstand the status of information at Companies House. This is not definitive or guaranteed to be accurate; it is merely a record of the information provided by companies. The definitive record is contained in the statutory books and registers maintained by the companies themselves.
The Bill will allow companies to opt to keep some of the statutory registers (the registers of shareholders, directors and their addresses, secretaries and the PSC) at Companies House. The filing requirements will be the same, but companies will no longer have to keep these registers themselves, as they will be maintained in the future by the Registrar of Companies from the documents filed.
This means that, for companies choosing this option, the Companies House record will become definitive. The disadvantage is that changes to the register of shareholders (for example, the issue of new shares and the transfer of existing shares) take effect from when they are recorded in the register, and the companies will no longer be in control of the timing of this.
It is expected that these provisions will come into force in April 2016.
Peter Stevens - TWM Solicitors LLP
T: 01483 752700
Peter Stevens practised as a partner in Central London law firms for over 30 years before joining TWM in 2009.
He has a wealth of experience in company/commercial matters, including M&A, agency and distribution agreements, advertising and marketing, competition law, share schemes and IP/IT law.
Peter is solicitor and a Chartered Tax Advisor, has been recognised by Legal Business as a leading expert in both E-Commerce and Franchising, and listed as a notable practitioner in Corporate/M&A in the Chambers Global Directory, where he was named as a “Foreign Expert” for the UK, and also as an “Expert Based Abroad” for France and Germany.