The end of the road for corporate directors?

02 Jun 2016

The Small Business, Enterprise and Employment Act 2015 introduced key changes to the way companies must operate in the future, the objective of which is to increase transparency and accountability. One of the noteworthy requirements is that companies are no longer permitted to use corporate directors. There are a few exceptions to this rule, which include certain UK subsidiary companies, public bodies or religious organisations; but in the main, this change will effect most SMEs which have corporate directors.

The current position is that UK companies must have at least one director who is a natural person. Provided there is at least one natural person acting as a director, any additional directors can be a mixture of natural persons and companies. This will change from October 2016 when there will then be a 12 month grace period in which to change this position, ending in October 2017. After this period, any corporate directorship will automatically cease. Any appointment of a corporate director made in contravention of the new legislation will be void and as such it will be an offence to do so.

Companies with corporate directors need to think carefully in the coming months about the composition of their board of directors, taking steps to remove any existing corporate directors (presuming that none of the limited exceptions apply) and putting in place natural person directors.

For more information on this article or business law, please contact Abigail Owen.

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