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 persons are held in a publicly 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.