Company Law Impact of Small Business Enterprise and Employment Bill
The Small Business, Enterprise and Employment Bill (the Bill) was introduced to Parliament on 25th June 2014. Whilst the Bill is wide ranging in its intention to foster and encourage entrepreneurial spirit in the UK (including covering pubs, childcare and employment regulation amongst other things), there is much in the Bill which will be of direct significance and consequence for those running a business from a company law perspective. This is particularly in relation to company transparency and accountability. Many of the proposed changes are specifically aimed at small privately owned companies as many large publicly listed companies are already subject to a fairly stringent regulatory transparency regime.
The key headline points which SME businesses need to be aware of regarding proposed changes to company law are:
1. More streamlined process to company registration and filings
The Government want to make it easier to set up a company as well as fulfil on-going registration requirements, in particular to ensure companies can fulfil all their legal incorporation obligations to Companies House and HMRC once and in digital form. The Government has a stated priority of reducing unnecessary on-going red tape for companies; therefore companies will, amongst other things, have more flexibility as regards confirming the accuracy and completeness of their company information at any point in the year as well as being able to opt out of keeping company registers (register of members, directors etc). Companies will still have to notify Companies House in respect of information for public registers but opting out of private registers will reduce much of the administrative burden currently on small businesses.
2. Register of people with significant control over a company (PSCs)
Currently a UK company is only obliged to keep a register of those who legally own shares in a company. A company has no duty to enquire as to whether shares are held on trust for another person or legal entity. Going forward however a publicly accessible new central registry of company beneficial ownership information will require companies to identify PSCs.
A PSC is someone who owns or controls more than 25% of a company’s shares or voting rights or otherwise exercises control over a company or its management. Companies will have to be pro-active in identifying these people both on incorporation and on an on-going basis and this measure is particularly aimed at private companies who will be under a duty to divulge information that they might reasonably be expected to know about their shareholders. Individuals will also be required to disclose their interest in the company to the company. The Companies House public register will also have to include information above and beyond that contained in a company’s register, including the beneficial holder’s name, month and year of birth, nationality, country of residence, service address and details of his/her interest in the company. There will be an annual requirement to confirm the accuracy of the information.
3. Bearer shares to be abolished
Bearer shares are unregistered shares owned by whoever physically holds them. No new bearer shares will be able to be issued and existing bearer shares will be required to be surrendered within a short timeframe after the legislation is implemented.
4. Corporate directors to be abolished
Corporate directors are one company acting as a director of another. Going forward all directors will need to be natural persons. The only exceptions will be limited to those of high value, low risk situations which are unlikely to be available to most small businesses.
5. Updating of the director disqualification regime
Those who hide behind a current director and control them, causing misconduct on the part of that director, will become accountable themselves. This could ultimately lead to criminal sanction. The Government will also broaden the scope of the directors’ disqualification regime more generally and increase information sharing and cooperation with the Insolvency Service.
6. Application of statutory duties for shadow directors
Those who control all or a majority of a company’s directors will have legal duties on the same basis as individual directors. The duties will also be more accessible and comprehensive than they currently are and as part of a company’s filing requirements, all company directors will be informed of their statutory duties.
The timing of when the Bill will pass into law is as yet uncertain; however it is probable that by the end of 2014 the necessary legislation will be in place with staggered implementation dates to allow bodies like Companies House to adjust their systems accordingly. Simply Docs will monitor the situation and update its documents accordingly when more information becomes available. In the meantime our sub-folder Dealing with Directors and Company Secretary & Admin have the documents you will currently need to manage the company administrative process.
However for those who have structured their businesses in the interests of privacy or employ trust structures (such as many family run businesses who wish to separate company management from ownership), they will need to be particularly mindful of the impact these new changes may have on their business administration.