The Small Business, Enterprise and Employment Act 2015 received Royal Assent on 26 March 2015. Much of the secondary legislation implementing this new Act together with guidance on its interpretation is still awaited. However, under the current implementation timetable, the new Act is expected to be brought into force on a phased basis over the next 12 months.
The name of the Act is somewhat misleading. There are many provisions which will apply to businesses irrespective of size. To ensure compliance with a number of the new provisions, businesses will need to do some planning and information gathering in advance of the provisions coming into force.
In this briefing we highlight the main governance changes which are being introduced by the new Act.
New transparency of ownership requirements
These new transparency requirements will have far reaching effects.
Following a series of consultations these provision have been introduced with a view to securing greater transparency as to the ownership and control of UK registered companies.
With effect from January 2016 (based on the current timetable) companies will be required to maintain information regarding individuals who have significant shareholding positions or the ability otherwise to exercise control over the company. These are to be known as “people with significant control” or “PSCs”. The new provisions will not apply to companies whose shares are publicly traded since these are already regulated by transparency provisions in the Financial Conduct Authority’s Disclosure and Transparency Rules.
The information on PSCs to be maintained by each company will be held in a register of PSCs and that register will be made public, subject to certain limited exceptions.
It is likely therefore that a company will need to liaise with certain shareholders to establish whether they are PSCs or are holding shares for PSCs and then to gather information from those PSCs which requires disclosure. Detailed regulations as to the information to be kept and how this is to be collated remain to be published. Companies where shares are held through nominees or trusts are highly likely to be affected.
The Act defines those who will be regarded as PSCs. The definition includes any individual who either alone or as a joint holder meets one or more of a number of tests. These tests include:
- An individual who holds directly or indirectly more than 25 per cent of the shares (calculated by reference to nominal value)
- An individual who holds directly or indirectly more than 25 per cent of the total voting rights
- An individual who holds the right directly or indirectly to appoint or remove a majority of the board of directors
- An individual who exercises or has the right to exercise significant influence or control over the company
The register of PSCs maintained by a company will need to record information on PSCs holding shares directly or indirectly in that company. Companies will have a duty to investigate, obtain and update the information about the PSCs and individual shareholders and legal entities holding shares will have corresponding duties to provide relevant information. Non-compliance will be subject to fines and prison sentences.
The full guidance on the PSC requirements is expected in October 2016 so companies will have very limited time following the publication of that guidance to meet the new obligations by the expected commencement date in January 2016. The identification of PSCs in relation to companies with complex ownership arrangements may be difficult and the transparency of ownership which will result could have commercial and other consequences which companies may wish to start considering in advance of the full guidance becoming available.
Other governance changes to be introduced by the new Act
Bearer shares: Bearer shares are a type of share which can be transferred simply by transferring the share certificates without the need for any stock transfer form. Bearer shares make the identification of shareholders and those who exercise control almost impossible to ascertain. Consistently with the new transparency requirements, bearer shares are in effect being abolished by the new Act. No new bearer shares can be issued after May 2015 and existing bearer shares in issue must be converted into conventional shares by February 2016.
Shadow Directors: It is clarified that shadow directors (that is any person in accordance with whose directions or instructions the directors of a company are accustomed to act) will become subject to the same duties as apply to a director. This change will have significance for companies where, for example, a significant investor or a loan provider oversteps the line and in effect directs how the business of the company should be conducted by its board. Shadow directors will have the same exposure as conventional directors if they have not acted in accordance with the duties applicable to directors. This is likely to be of particular importance on insolvency.
Annual Returns: The Annual Return will be replaced in April 2016 by a new return known as a Confirmation Statement which will need to be filed on a 12 monthly basis. The Statement will confirm that all required filings through the previous year have been properly made and will contain information as to any changes which have occurred including, for example, in relation to PSCs.
Statements of Capital: A positive change is that the current statement of capital forms, which have to be filed at Companies House when changes to a company’s share capital occur, are to be simplified. The requirement to specify any premium paid on each issue of shares going back indefinitely in time will be removed. It will be permissible to provide aggregated information on the overall premium paid.