Small Business Act: Prohibition on corporate directors

Exceptions

The exceptions to the prohibition will be set out in regulations. These regulations have yet to be finalised. In November 2014, the Department for Business, Innovation and Skills (BIS) published a consultation seeking views on the proposed exceptions. Respondents to the consultation highlighted a number of areas where exceptions could be useful and also reinforced that using corporate directors can have significant benefits. As a result, BIS published a questionnaire in March 2015 confirming that it was considering alternative approaches to the exceptions regime.

BIS is now exploring the possibility of having a "principles" based exception. Under this approach, a company would be permitted to appoint a corporate director if both of the following conditions were satisfied:

• all of the “directors” of the corporate director entity are natural persons (ie individuals), and
• the law under which the corporate director entity is established requires certain details of the "directors" of the corporate director entity to be included in a publicly maintained and accessible register. (BIS notes that this condition would not be required if only UK companies are allowed to be appointed as corporate directors because details of directors of UK companies must be filed at Companies House.)

Transitional provision

Companies with a corporate director that does not fall within one of the exceptions will have 12 months from the date that the provision comes into force to remove or replace that director. All prohibited corporate directorships will automatically cease from the end of that 12 months period.

What to do now

Companies should consider their group structures and identify any corporate directors within them. Once the regulations detailing the exceptions to the new regime have been published, companies should assess whether their existing corporate directors fall within any of the exceptions. If they do not, then a decision will have to be made whether to replace or simply remove those corporate directors (bearing in mind any requirements in their articles of association relating to the minimum number of directors.)