A Ban on Corporate Directors

23rd February 2016 Corporate

The Small Business, Enterprise and Employment Act 2015 (SBEE) introduces several significant changes to the Companies Act 2006 (CA 2006) including a prohibition on corporate directors (namely, a director who is not an actual person).

The prohibition is expected to come into force in October 2016, although like many other provisions of SBEE this is subject to change. Once in force, it will be a criminal offence to appoint a corporate director and any such appointments will be void.

According to Companies House Data from 2013, when the Department for Business, Skills and Innovation (BIS) initially proposed increased transparency for UK companies, only 1.2% of UK companies used corporate directors. However, this still equated to about 38,000 companies that would be affected by the ban.

Fortunately the changes to CA 2006 also allow the government to introduce further regulations allowing for exceptions to the ban.

Although no such regulations have yet been published, the Department of Business, Innovation and Skills (BIS) has canvassed the possibility of corporate directors in limited circumstances and provided certain conditions are met (e.g. in March 2015, the current consideration was that corporate directors may be permissible where all the directors of the corporate director are actual people (or natural persons) and details of those natural person are held in a publically maintained and accessible register).

As no further guidance or regulations have yet been published it is a case of waiting to see how the legislation will be implemented however it is safe to say that even if an exception is introduced, all companies will still have to have at least one director who is an actual person as is currently the case.

So what does this mean for UK companies?

Assuming the changes to CA 2006 come into force in October 2016 it will be an offence to appoint a corporate director after this date unless exempt under further regulations published by the Secretary of State.

For any companies with corporate directors appointed before October 2016, there will be a transitional 12 month grace period. If by October 2017 it appears that the corporate director will not be exempt under further regulations it will automatically cease to be a director. Companies should update their registers at this point and notify Companies House accordingly.

If you would like to discuss the impact of a ban on corporate directors on your company or any of the other changes introduced by the Small Business, Enterprise and Employment Act 2015 you can call our Corporate team today on 0345 872 6666.

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Mike Blood is a Partner and Head of Corporate located in Manchester in our Corporate department

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