The proposed ban on corporate directors appears to have been delayed. Whilst there has been no formal announcement, the Companies House website, which previously suggested the ban would come into force in October 2016, has been changed to refer to the proposals still being ‘under development’.
Who can be a director?
Currently, any legal person can act as a director of a company. As well as an individual, this would also include another company or a limited liability partnership, both of which have separate legal personality in law. Individual directors must be at least 16 years old and a company must have at least one individual (as opposed to corporate) director. Whilst private companies can have a sole director, public companies must have at least two directors at any time.
The proposed ban
As part of its drive to improve corporate transparency and accountability, the Government previously identified corporate directors as a problem area. There was a concern that using corporate directors created a layer of obscurity over who was actually controlling the company and reduced the ability to hold individuals liable for the company’s actions.
As a result, provisions which would require all directors to be natural persons were included in The Small Business, Enterprise and Employment Act 2015 but, so far, those provisions haven’t actually been implemented.
Will there be any exceptions to the ban?
The original proposals contained very limited exceptions to the proposed ban but the Government admitted that its consultation on those proposals had ‘opened our eyes to practical uses of corporate directors that we hadn’t fully appreciated before’.
Following a rethink, the Government came back with a new suggestion for a ‘principles’ based exception which would allow a company to appoint a corporate director if:
- all of the directors of the corporate director are individuals; and
- the corporate director is legally required to keep certain details of its own directors in a publicly accessible register – such as those details which UK companies currently have to file at Companies House in respect of their directors.
So a UK company could act as a corporate director of another company provided all of its own directors were individuals.
Unfortunately, since this exception was proposed back in April 2015, there has been no response from the Government as to whether or not it will be included when the ban takes effect.
What should you do now?
When the ban comes into force, companies with appointed corporate directors at that date will have a transitional period of 12 months to arrange for their replacement.
So, if your company currently has a corporate director there’s no need to take any immediate action. It would be sensible, however, to start preparing for the ban, identifying someone who could replace the corporate director, so the company’s operations can continue seamlessly when (if?) the proposals finally become law.