An introduction to the Small Business, Enterprise and Employment Act 2015 (the SBEEA 2015)

An introduction to the Small Business, Enterprise and Employment Act 2015 (the SBEEA 2015)
The SBEEA 2015, which received Royal Assent on 26 March 2015, is an incredibly wide-ranging act which affects a miscellany of topics including childcare, education, employment and access to finance as well as company law. This Practice Note takes corporate lawyers through the parts of the SBEEA 2015 that affect companies and amend the Companies Act 2006 (CA 2006).The company law reforms in the SBEEA 2015 can be put into two categories:

  • those which relate to the improvement of transparency and trust in UK companies, and
  • those which relate to the reduction of red-tape, including the simplification of a number of company filing requirements

Most of the company law reforms have not yet commenced and will come into effect by way of statutory instruments that have not yet been published.

Transparency

Against a background of heightened public distrust of companies and their directors in the few years since the financial crisis in 2008, one of the government's key objectives in relation to the SBEEA 2015 was to enhance the UK's reputation as a fair and trusted place to carry on business. In order to achieve this objective, the SBEEA 2015 introduces new requirements for companies that will deter, identify and sanction those that try to hide their interests in UK companies to facilitate illegal activities.The reforms within the SBEEA 2015 that are intended to improve transparency and trust in UK companies are:

  • the creation of a new publicly accessible central register of the individuals who ultimately own and control such companies (people with significant control or PSCs)
  • greater restrictions on the use of corporate directors
  • the extension of the directors' statutory duties to shadow directors, and
  • the abolition of bearer shares

Each of these reforms relating to company transparency are covered in greater detail below.

Reduction of red-tape

The government also intended to reduce red-tape for companies by introducing measures in the SBEEA 2015 to simplify the current filing requirements for companies, remove duplication and improve the accuracy of the public register by making it quicker and easier to remove inaccurate information.Some of the measures to simplify company filing and other administrative requirements include:

  • introducing a more streamlined procedure to incorporate companies
  • giving private companies the option to provide information to a public register as an alternative to keeping its own statutory registers
  • replacing the annual return with a confirmation statement
  • implementing a faster strike off regime
  • simplifying the information in the statement of capital, and
  • simplifying the filing requirements for directors' appointments

The reforms in the SBEEA 2015 relating to the reduction of red-tape for companies are covered in greater detail below.

The PSC register

The new register of PSCs (PSC register) will address the government’s concerns about the opaque nature of the existing company share register, which shows only the legal and not the beneficial owner of a company’s shares. The PSC register will give accurate and current information on who ultimately owns and controls companies and it will be publicly available on a central registry held at Companies House. (Small Business, Enterprise and Employment Act 2015, ss 81–83, Sch 3)
 
The introduction of a PSC register has probably attracted the most commentary from corporate lawyers out of all of the company transparency measures in the SBEEA 2015 due to the additional administrative burden that will be imposed upon both companies and their shareholders, especially for large group companies with complex ownership structures. In some cases, it may be a time-consuming task to trace the individual with ultimate control.

What is a PSC?

A PSC is a legal person with significant control over that company. The SBEEA 2015 defines ‘significant control’ as:

  • direct or indirect ownership of more than 25% of the shares in the company
  • direct or indirect control of more than 25% of the voting rights in the company
  • direct or indirect right to appoint or remove or appoint a majority of the directors of the company
  • the exercise or right exercise significant influence over the company, or
  • the exercise or right to exercise significant influence or control over the activities of a trust or firm which itself meets one of or more of the first four conditions

What are the requirements?

The main requirements in relation to the PSC register are:

  • a company will be required to hold and keep available for inspection a PSC register, unless it is excluded from the requirement by regulations or it is a company to which the Disclosure Rules and Transparency Rules, DTR 5 apply
  • the information on the PSC register (which must include details of the individual's name, date of birth, nationality, address and details of their interest in the company) must be filed at Companies House upon incorporation and at least once every twelve months (on the new confirmation statement, which will replace the annual return)
  • companies will be required to take reasonable steps to identify people they know or suspect to have significant control by giving notice to the suspected PSCs or others to obtain information
  • PSCs will be required to disclose their interest in the company to the company in certain circumstances
  • companies will be required to update the PSC information if they know or might reasonably be expected to have known that a change to their PSCs has occurred
  • PSCs will be required to inform the company of any changes to the information recorded in certain circumstances, and
  • all information will be publicly accessible with the exception of the residential address and the day of the date of birth, unless the company elects to hold its PSC register at Companies House (individuals will be able to apply to have information suppressed from disclosure in exceptional circumstances)

Further guidance

While the SBEEA 2015 sets out the main provisions relating to the PSC register, secondary legislation and guidance is required to complete the picture and help people fully understand the reforms and requirements. A working group was been established to develop such legislation and guidance. A consultation on the PSC register was published on 19 June 2015, which includes the first draft of the regulations setting out the full details of the proposed PSC regime. Draft guidance is expected autumn 2015.
 

Corporate directors

The SBEEA 2015 will prohibit the use of corporate directors, with limited exceptions that will be set out in regulations. The intention of the reforms relating to corporate directors is to deter opaque arrangements involving company directors and to increase the accountability of directors where corporate directorships are used to no good end. (SBEEA 2015, ss 87–88)
The exceptions to the prohibition have not yet been confirmed, but the government has stated that they will apply where the use of corporate directors presents a low risk of illicit activity and is of high value to the running of a company. For companies with existing corporate directors, there will be a 'grace period' of a year from the legislation coming into force before an existing corporate director will be deemed to cease being a director.

Shadow directors

The statutory duties of directors will be extended to apply to shadow directors to the extent they are capable of applying. The purpose of this measure is to deter opaque arrangements involving company directors, to improve standards of shadow director conduct and to increase the accountability of shadow directors. The definition of 'shadow director' in CA 2006, s 251 will also be amended. (SBEEA 2015, s 89)

Bearer shares

Bearer shares, or share warrants to bearer, which are unregistered shares owned by whoever physically holds the share warrant, are prohibited by the SBEEA 2015. The government wanted to eliminate bearer shares from the UK business environment because it believes that they are at high risk of being used for illicit activities, such as tax evasion or money laundering, due to the fact that they are held anonymously and are infinitely transferable. (SBEEA 2015, ss 84–86)
Companies will be prohibited from issuing bearer shares with effect from 26 May 2015 (being two months following the date that the SBEEA 2015 received Royal Assent), and within the following nine months (ie, up until 26 February 2016) any existing bearer shareholders should surrender their shares to the company and have them exchanged for registered shares. If the bearer shares are not surrendered and exchanged, the company will cancel such shares and relevant monies will be paid into court by the company.While these reforms will have a major impact on companies that have issued bearer shares, there do not appear to be that many companies that have done so. There are over 3 million registered companies in the UK, and the government's response paper of April 2014 to its consultation on transparency and trust in UK business states that only a tiny proportion of those companies will be affected by the reforms: 

"The latest data from Companies House show that around 1200 UK companies have issued bearer shares. Around three quarters of these are small private companies. By the very nature of bearer shares we cannot know how many shareholders own these, but we estimate there might be around 3000 bearer shareholders of UK companies."

Reduction of red-tape and changes to filing and record-keeping requirements

Streamlining the company registration process

The SBEEA 2015 requires the Secretary of State to ensure that, by no later than 31 May 2017, a system for streamlined company registration is in place. The government's intention in relation to this requirement is to address what it views as a fragmented process to establish a new company in the UK in that it involves providing several departments and agencies (eg, Companies House and HM Revenue & Customs) with different levels of information about the business in order to obtain all of the necessary permissions to trade. The aim would be to establish a 'one click registration' system which means that incorporation at Companies House and registration for tax purposes at HMRC is completed by means of supplying information on a single occasion. (SBEEA 2015, ss 15–16)

Replacement of the annual return with confirmation statement

The SBEEA 2015 removes the requirement to file an annual return and replaces it with a requirement to submit a statement of confirmation. Like an annual return, the statement of confirmation will need to be submitted every twelve months, but it should be simpler to complete than an annual return because it will offer a 'check and confirm' option for information already on the register that has not changed, rather than requiring the company to resubmit the same information. (SBEEA 2015, s 92)

Option to keep information on central register

Private companies will have the option of keeping the information currently kept on the following registers on the public register held at Companies House only, rather than having to keep their own registers: (SBEEA 2015, s 94, Sch 5)

  • the register of members
  • the register of overseas branches
  • the register of directors, and
  • the register of directors' residential addresses

Private companies will also have the option of keeping PSC information on the central register rather than keeping their own PSC register. Companies should note, however, that if the information is kept centrally only, the public register will reveal the date of the day of birth of the PSCs (which will be omitted if the company maintains its own PSC register), although individuals may apply to have information suppressed from disclosure in exceptional circumstances.

Statement of significant control

There will be a new section 12A in the CA 2006 requiring that a statement of initial significant control, containing information on the company's PSCs, be included with the registration documents delivered to Companies House upon incorporation of a company. (SBEEA 2015, Sch 3)

Statement of capital

The information to be given on a statement of capital will be simplified. (SBEEA 2015, s 97)

Appointment of a director

The current position when notifying Companies House of a director's or secretary's appointment is that the Companies House appointment form must include the consent of that person to act as director or secretary in the form of a signature or a digital authentication. The new proposals will simplify the procedure for notifying Companies House of the director and secretary appointments by removing the requirement for the form itself to contain the consent, and instead requiring the company to make a statement confirming that consent to act has been given. (SBEEA 2015, s 100)

The day of the date of a director's birth is going to be suppressed on the public register (ie the register will only show the month and year of the director's birth). However, if a private company has made an election to keep the information on the register of directors centrally only, rather than keeping their own register of directors, this information will not be suppressed and the entire date of birth will be revealed on the public register. (SBEEA 2015, s 96)

Shortened strike-off procedure

The company strike off procedure will be shortened by a number of weeks in order to speed up the process for getting defunct companies off the register. (SBEEA 2015, s 103)

Registered office

The process for removing inaccurate registered office addresses from the register will be simplified. The provisions will require the registrar, on application, to change a company's registered office address where the registrar is satisfied that the company is not authorised to use that address. (SBEEA 2015, s 99)

Timing and implementation

Royal Assent

The SBEEA 2015 received Royal Assent on 26 March 2015.

Implementation

Several commencement dates relating to the company law reforms have now been confirmed in the SBEEA 2015. A number of commencement dates have not been specified in the SBEEA 2015, but the government has announced provisional implementation dates. The following table summarises the commencement dates and the proposed implementation timetable:
Date Provision coming into force SBEEA 2015 section number
26 May 2015 (two months following SBEEA 2015’s Royal Assent) The prohibition on issuing new bearer shares SBEEA 2015, ss 84–86
The nine month period for companies to surrender and exchange their existing bearer shares begins SBEEA 2015, ss 84–86
The provisions requiring the Secretary of State to introduce a streamlined company registration procedure by 31 May 2017 SBEEA 2015, ss 15–16
The application of the statutory duties to shadow directors SBEEA 2015, ss 89–91
Simplified process for changing an inaccurate and unauthorised registered office SBEEA 2015, s 99
October 2015 Reduction of the time periods applicable to the company strike off process SBEEA 2015, s 103
Suppression of directors' dates of birth from the public register SBEEA 2015, s 96
January 2016 The requirement for companies to keep a PSC register SBEEA 2015, ss 81–83, Sch 3
26 February 2016 The nine month period for companies to surrender and exchange their existing bearer shares ends SBEEA 2015, ss 84–86
April 2016 The prohibition on corporate directors* SBEEA 2015, ss 87–88
Simplification of the statement of capital SBEEA 2015, s 97
The new confirmation statement replaces the annual return SBEEA 2015, s 92
The obligation to file PSC information register at Companies House SBEEA 2015, ss 81–83, Sch 3
The option for private companies to keep information on the public register rather than keeping their own registers SBEEA 2015, s 94, Sch 5
31 May 2017 A new streamlined company registration procedure must be introduced by 31 May 2017 SBEEA 2015, ss 15–16

* Note that until 19 June 2015, it was anticipated that the restrictions on corporate directors would come into force in October 2015. However, in the BIS consultation paper on the PSC register, published June 2015, a comment was made noting that these restrictions are now intended to come into force in April 2016.

Latest Articles:
More icon
Top challenges facing in-house legal departments in 2025
In-house |
5 min read
More icon
Client experience: the new battleground for law firms
Future of Law |
5 min read
More icon
Understanding the 2024 AGM season: key insights for legal leaders
Future of Law |
3 min read
More icon
Top trends UK law firms can expect in 2025
Future of Law |
5 min read
About the author:
Jenisa Altink-Thumbadoo
Jenisa is Head of Market Insights for Lexis®PSL, with responsibility for the delivery of Market Tracker, a transaction analysis product that sits within Lexis®PSL Corporate. She has over 15 years of legal publishing experience, with a focus on researching and reporting on trends and developments in the corporate and commercial legal market. Previous roles include content developer for Lexis®PSL, Legal Podcaster at Informa, and Research Editor at Practical Law Company where she specialised in reporting on cross-border corporate and commercial developments from the firm’s New York office.