At the end of March 2015, Parliament approved the Small Business, Employment & Enterprise Act, meaning the impact of this new legislation will now be felt by businesses across the UK.
The part that has attracted publicity is the requirement to keep a register of who controls the company. From January 2016, companies will have to keep a register of the Persons with Significant Control over the company (PSCs). This will be a list of the owners or controllers of more than 25 per cent of its shares or voting rights or those who “otherwise exercise control over the company or its management”. This is in addition to the Register of Members that companies already have to keep.
The details on the PSC register will be the full name, date of birth, and address of each owner and the details of their interest (shares or otherwise). Subsidiary companies won’t usually have to go beyond identifying their immediate parent company if that parent keeps a PSC Register, but trusts and nominee arrangements may need to be disclosed. The register will need updating when changes in ownership occur, or on an annual basis if there are no changes during a year.
Directors and Company Secretaries who are not certain who their PSCs are will need to start trying to identify and locate their shareholders. The new rules oblige companies to take reasonable steps to identify people they know or suspect to be PSCs, and provide powers to companies to write to these people to request the information and impose sanctions on them if the information is not provided.
PSCs will also be obliged to disclose their shareholdings. Failure to comply with the rules will be a criminal offence for not only the PSC, but also the company, its directors and secretary.
In addition, the new Act brings about a number of changes to the Companies House filing regime, with effect from April 2016. Companies will no longer be required to file an Annual Return but will need to keep company information up to date on at least an annual basis by either notifying changes when they happen or confirming that there have been no changes.
From October 2015, having corporate directors (a director which is a company rather than a person) will no longer be an option other than in limited circumstances. Existing corporate directors will automatically cease to be directors a year and a day after the new legislation comes into effect. Companies who still have a corporate director will need to consider appointing an additional person as a director if needed for board meetings.
Furthermore, ‘exclusivity clauses’, which prevent individuals on zero hours contracts from working for another employer (even if the current employer is offering no work) will be stopped. The Act also gives rights to staff that have been on these contracts for long periods of time, with employees working regular hours having the right to request a contract other than zero hours after six months.
Also, businesses with 250 or more employees will now have to publish the difference between average pay for their male and female employees. There has been a rise in the number of female company directors at board level, which reached 23.5 per cent in the FTSE 100; almost double the number in 2011. The reporting measure on pay is a step towards ending the gender pay gap.
But what does this new Act mean for small businesses?
One of the new rules enshrined in the Act is a pledge to cut ‘red tape’. As part of this pledge, each new regulation introduced means that two old ones will have to be cut. This has been designed to streamline processes and reduce the legislative burden on small and medium-size enterprises (SMEs).
Under the Act, banks and alternative finance providers will be required to share more information about lending. This could mean that if a bank refuses to give a business a loan it will be able to share that company’s information with an alternative lender, and vice-versa, which will help SMEs to access finance.
The new legislation also sets out the guidelines for the creation of new ‘challenger banks’. The Government hopes that these new financial institutions will improve competition for businesses and open up more finance for small businesses.
The Act also calls for the review and reform of the insolvency system that will be aimed at reducing the cost of administering insolvency proceedings. As all insolvency costs must be paid before any money can be returned to any class of creditors, this should result in increased returns to creditors.
Late payments have also been targeted in the Act and it calls on all companies to improve payment practices so that small businesses have more information on what to expect from them, in order for them to negotiate fairer terms and ensure that invoices are paid on time.
SMEs will also be helped to grow overseas, thanks to additional export finance and support.
As part of the Government’s pledge to involve more SMEs in the public procurement process, more support will be given to firms trying to access Government and public contracts. At present, just 10 per cent of Government contracts go to smaller firms.
Linked to this is the revelation that new definitions of what constitutes ‘small’ and ‘micro’ businesses will be introduced, in line with EU recommendations.
There will also be additional legal protection for whistleblowers that name employers breaking employment rules.
New rules for transparency are also covered in the Act, and SMEs will need to be clear on who owns their shares and controls their business, ostensibly making illegal activity, tax dodging and ‘corporate shell’ systems harder to get away with.
The Act will also see the maximum penalty for under payment to be imposed on employers on a per worker basis, in order to deter companies from not paying the national minimum wage.
