Add a bit of transparency to your business: from G8 to the board room.
Add a bit of transparency to your business: from G8 to the board room.
As first announced at the G8 summit in June 2013 and discussed further at the G20 summit in November 2014, there are going to be significant changes to the Companies Act 2006.
David Cameron is on a personal mission to increase transparency in the ownership and control of companies in the UK. With the support of Vince Cable, the Secretary of State for Business, Innovation and Skills, the Government published the Small Business Enterprise and Employment Bill (the Bill).
As the title suggests, the Bill encompasses a mass of different areas. The two keys areas which will affect most companies in the UK are:
• the abolition of corporate directors; and
• the introduction of a new ‘PSC register’.
Abolition of Corporate Directors
As part of the transparency agenda, the Bill requires all company directors to be natural persons. In effect, companies will no longer be able to have corporate directors.
The rationale for Government introducing a ban on the use of corporate directors is threefold;
• corporate directors are currently used by individuals to disguise their involvement in the company;
• poor corporate governance; and
• it is, at present, difficult to bring a claim for misfeasance against corporate directors.
Guidance suggests that there will be a year’s grace period from the date the Bill is enacted for companies to replace corporate directors with a natural person. After his period, the appointment of corporate directors will automatically terminate. This could potentially impact on the quorum requirements and provisions contained in the articles as to the minimum number of directors.
Separate regulations, to be published in due course, will set out exceptions when the use of corporate directors will still be permitted. However, commentary suggests Limited Liability Partnerships will continue to be able to appoint corporate directors. In addition where the company is: (i) admitted to trading on a regulated or prescribed market; or (ii) a large private or public company operation in a group structure, the use of a corporate director may still be permitted.
PSC Register
Once the Bill is enacted, companies will be required to maintain (and keep open for public inspection) a PSC register (where PSC stands for “person with significant control”). The objective of the PSC register is to prevent corrupt individuals hiding behind secret companies.
At present, the information contained in the shareholder register is limited to the legal owner of the shares (irrespective of who the beneficial owners are). However, the PSC register will increase this to anyone who:
• holds (directly or indirectly) more than 25% of the company’s shares;
• is entitled (directly or indirectly) to exercise or control the exercise of more than 25% of the voting rights in the company;
• is entitled (directly or indirectly) to appoint or remove (or control that appointment or removal) of a majority of a company’s director; or
• has the right to exercise ‘significant influence or control’ over the company.
The categories are very wide and mirror those used in the money laundering regulations to identify beneficial owners under a trust or a fund. However there are some limited exceptions. Companies which have securities listed on a regulated market (e.g. Main Market and AIM) and comply with the DTR5 or equivalent disclosure requirements will not be required to keep a PSC register.
Whilst greater transparency is welcomed, identifying such individuals may prove difficult as those who exercise significant control may be hidden behind layers of other entities which own shares in such companies.
Whilst the Bill is currently going through Parliament, it is expected to become law before the next general election in May 2015.
We envisage that the above will impact every company in the country. Should you have any concerns about how the Bill may affect your organisation, please contact Youichi Iisaka(YouichiIISAKA@bdb-law.co.uk) (Solicitor) at Bircham Dyson Bell LLP on 020 7783 3477.
