30 March 2015

Changes to UK company law - The Small Business, Enterprise and Employment Act 2015

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 follows:

  • "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.

Significant control

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 yet).


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 yet.

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.


Corporate directors

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 currently consulting 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).

Shadow directors

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

Bearer shares

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 many companies.

Annual returns

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 April 2016.

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.

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