Legal changes businesses can expect in 2017
2017 will herald a new era for the UK with Article 50 of the European Union Treaty expected to be triggered at the end of March. (The government still intends to meet this timetable despite the necessity for Parliament’s intervention following the Supreme Court ruling yesterday.) The legal implications of Brexit are not yet known but the effect will undoubtedly be felt in every sector of industry.
In the meantime, we can tell you about additional non-Brexit changes to corporate law which are already on the horizon.
Corporate directors’ ban
The Small Business, Enterprise and Employment Act 2015 includes a provision to ban the use of corporate directors. The government is consulting on whether there may be limited circumstances in which corporate directors can continue to be used (eg subsidiary companies of parent companies with shares admitted to trading or on regulated markets).
It was originally thought that the ban would come into force last October but the timing has slipped and commentators now think it is likely to be in April or June this year.
Payment practices reporting
The Act will give the Secretary of State the power to make regulations requiring large companies/LLP’s to publish reports on their payment practices and policies relating to certain specified contracts and the manner in which they have performed them. It is expected that they will come into force on 6 April this year but at the moment they can be summarised as follows:
- the regulations only apply to large companies and LLPs ie companies that have exceeded at least two of the turnover, balance sheet and average number of employee thresholds for a medium-sized company as set out in the Companies Act 2006, on both of the last two balance sheet dates. (Turnover – not more than £36 million; balance sheet total – not more than £18 million; employees – no more than 250.)
- the regulations will apply to contracts for goods, services or intangible assets (including intellectual property) entered into in connection with a business. Contracts for financial services, and contracts which do not have a significant connection with the UK, will not be affected.
- the regulations will require large UK incorporated companies to report on their payment practices twice a year and to supply information about their standard payment terms.
- a director (in the case of companies) or a designated member (in the case of the LLPs) will also need to approve the company’s information before it is submitted to a centrally-hosted government website for publication.
It is anticipated that the government will issue guidance at the same time as it lays the draft regulations before Parliament. The date of publication is not yet known.
Updates to PSC registers
UK companies and LLPs are now required to keep a register of persons with significant control (PSC register). The test for individuals having significant control include those shareholders holding more than 25% of the shares or voting rights in the company. Certain changes to the PSC registers are expected as the UK continues to implement the Fourth Money Laundering Directive 2015 (Directive).
The Department for Business, Energy and Industrial Strategy (BEIS) published a discussion paper in November 2016 on the implementation of the Directive; the following additional changes are proposed:
- the PSC regime will be extended to include Scottish limited partnerships, Scottish partnerships, unregistered companies, and open ended investment companies. In addition, building societies, charitable incorporated organisations (including Scottish and Northern Irish ones), co-operative societies and community benefit societies, credit unions and friendly societies would also be subject to the regime where they have a beneficial owner although, in practice this would be unusual. The BEIS is also considering whether companies trading on certain prescribed markets such as AIM and ISDX should also be brought within the PSC regime.
- to require all entities to update their PSC register information within 6 months of any change as the information should always be adequate, accurate and current.
- the definition of beneficial owner would be amended to reflect the new entities which now fall within the regime. For such new entities the information should be publicly accessible in a similar manner to the PSC registers.
BEIS intends the legislation to be prepared in order for it to meet the Directive deadline on 26 June 2017.