Business services – New requirements for corporate transparency
The Small Business, Enterprise and Employment Act 2015 (‘the Act’), Part 7, has introduced a number of changes in relation to ‘transparency’ which apply to all companies, not just small businesses. The aim behind these changes is to increase transparency in the ownership and control of UK companies. Directors need to be aware of these changes, some of which have already come into force, to enable them to ensure compliance with the new legislation.
The four main areas of change relating to transparency are:
- Abolition of bearer shares (i.e. shares owned by the person in possession of the share certificate)
- Prohibition of corporate directors
- Increasing the liability of shadow directors
- Establishing a register of ‘people with significant control’ (referred to as a ‘PSC register’).
A complete prohibition on the creation of bearer shares came into force on 26 May 2015 and the Act sets out transitional arrangements for the mandatory cancellation or conversion of existing bearer shares over a nine month period.
The prohibition on corporate directors is due to take effect from April 2016. Whilst the Secretary of State will have the power to make regulations in due course setting out exceptions to the general requirement that directors must be individuals, no such ‘exceptions’ are set out in the Act.
Section 89 of the Act provides that the general duties of directors (i.e. those set out in Sections 171-177 of the Companies Act 2006) apply to shadow directors where and to the extent they are capable of applying. These duties include, for example, the duty to exercise reasonable care, skill and diligence and the duty to avoid conflicts of interest. This change came into force on 26 May 2015.
Companies will be required to keep a PSC register from January 2016 and to supply such information to Companies House from April 2016. A PSC register must be available for inspection and must contain the ‘required particulars’ (which are quite extensive) of ‘registrable’ persons and legal entities. The obligations in relation to creation and maintenance of the PSC register fall on both the company and the individual with significant control.
In addition to the above, the Act has introduced changes to company registers and filing requirements, some of which are due to come into force later this year.
A version of this article appeared in Business East on 7 July 2015.