More regulation for UK companies: changes to the Companies Act 2006

9 minute read
04 August 2015

European Union legislation obliges the UK government to legislate for greater transparency in the form of the Small Business Enterprise and Employment Act 2015. This will affect almost every company to some extent. Consultation on certain details of the new regulations is ongoing, but here we set out the main headlines.

Stop Press: Companies Act amendments accelerated or deferred contains an update related to this article.

Persons with significant control

Transparency requires that individuals with a significant beneficial interest or other controlling rights in a company are identifiable. From January 2016, there will be new duties on companies to gather the required information and obligations on others to provide it. The only companies to which the new rules will not apply are those companies that are subject to Chapter 5 of the Disclosure and Transparency Rules issued by the Financial Conduct Authority.

For the purposes of the new rules, a "person with significant control" ("PSC") is someone who:

  • holds, directly or indirectly, more than 25% of the shares in the company;
  • holds, directly or indirectly, more than 25% of the voting rights in the company;
  • has the right, directly or indirectly, to appoint or remove a majority of the board of directors of the company;
  • has the right to exercise, or actually exercises, "significant influence or control" over the company (the government is due to issue guidance about the meaning of "significant influence or control" in October 2015); or
  • has the right to exercise, or actually exercises, significant influence or control over the activities of a trust or firm (which is not a legal person), the trustees or members of which meet any of the other specified conditions in relation to a company

Exceptions apply in certain situations where a person is a limited partner or directly or indirectly holds shares or rights in or in relation to a limited partner which (in its capacity as such) would be a PSC if it were an individual

Companies must:

  • take reasonable steps to find out if there is any person or other legal entity that is a PSC;
  • give notice to any person or other legal entity it knows or has reasonable cause to believe to be a PSC requiring that person or entity to state if they are and provide details; and
  • give notice to a person it knows or has reasonable cause to believe knows the identity of a PSC requiring them to state if they have that knowledge and to supply or confirm particulars.

PSCs are under a proactive disclosure obligation if they know or ought reasonably to know they are a PSC and the particulars are not already on the PSC register.

There are exceptions for persons or legal entities that hold interests in a company only through one or more other legal entities in relation to which they are PSCs. Those PSCs are referred to as "non-registrable".

Companies will be required to keep a PSC register which will contain required particulars of PSCs (other than those who are "non-registrable"). The PSC register must be kept available for inspection at the registered office and will also be part of the company's file at Companies House.

Both companies and individuals may face criminal penalties for failure to provide information, or for deliberately providing false information.

Abolition of share warrants to bearer

Bearer shares are shares the ownership of which is transferred simply by handing over the document (share warrant) which evidences the existence of the shares. No stock transfer form is required, and accordingly no stamp duty is payable on such a transfer. Since the holder of a warrant is not recorded in the company's register of members, bearer shares are perceived as a means of concealing the identity of shareholders, capable of exploitation for unlawful purposes.

Bearer shares can no longer be issued. There is a staged process for the surrender of existing bearer shares.

From 26 May 2015 (the "commencement date") there is a nine-month surrender period (the "surrender period") during which the bearer of the share warrant is entitled to surrender their bearer shares and have their name entered as a member in the company's register of members.

Within one month of the commencement date the company must have notified the bearer of a share warrant of their right of surrender and advised them of the consequences of not exercising that right in the seven months from the commencement date.

A bearer share that is not surrendered in the seven months from the commencement date can no longer be transferred; any transfer or agreement to transfer the share warrant from that point is void and all rights attached to the shares specified in the warrant are suspended. This suspension will cease to have effect if the bearer shares are subsequently surrendered before the end of the surrender period

Before the end of the period eight months from the commencement date the Company must give further notice to the bearer of the right, and consequences, of surrender

If a share warrant has not been surrendered for cancellation before the end of the surrender period the company must apply to the court for an order cancelling the share warrant and the shares specified in it. Such a cancellation would cause a reduction in the company's share capital.

There are detailed requirements as to how the required notifications are to be given.

Companies can amend their articles to reflect the abolition of share warrants without a members' special resolution, but the amended articles must be filed at Companies House.

Requirement for all company directors to be natural persons

The Companies Act 2006 introduced, for the first time, a requirement for every company to have at least one director who was a natural person. The use of corporate directors is to be very tightly restricted (provisionally from October 2015). As with the abolition of bearer shares, the aim is to make it easy to identify the people who are really in control of a company.

Existing directors who are not natural persons will automatically cease to be a director 12 months after the new law comes into force (i.e. provisionally in October 2016). The appointment of a corporate director in breach of the new law will be void.

Exceptions to the ban on corporate directors are to be published, following consultation.

Application of directors' duties to shadow directors

The statutory directors' duties set out in the Companies Act 2006 now apply to a shadow director of a company where and to the extent that they are capable of so applying. A "shadow director" is a person who is not a duly appointed director but whose directions are followed by the appointed directors and is thus the real "directing mind" of the company.

Other measures

Other amendments to the Companies Act 2006 will:

  • reduce the amount of detail required in company annual returns, where the company is able to confirm that all required information has been duly filed (or that there have been no changes since the previous return);
  • require the Registrar to notify anyone named in a notice of appointment of a director or secretary of the fact, so as to identify anyone whose identity is being misused;
  • shorten the period required for the Registrar to strike off an apparently inactive company;
  • permit private companies to keep certain information on the register kept by the Registrar instead of maintaining their own registers; this will apply to the registers of members, directors, directors' residential addresses and secretaries; and
  • make changes to the detail required in statements of capital.

There are also a number of administrative changes, such as reducing the amount of detail given on the public register of dates of birth of individuals; this is intended to counter identity theft.

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