Important change for companies acting as directors

09 August 2010

Impending deadline for the use of sole corporate directors.

From 1st October 2010, the use of sole corporate directors will be illegal as a result of provisions within the Companies Act 2006. After this date, companies without a 'natural person' acting as a director will be in default and may be subject to fines from Companies House. Companies formed after 8th November 2006 have been subject to this requirement since 1st October 2008.

What is a natural person and a corporate director?

A natural person, for the purposes of the Companies Act, is the common sense definition, i.e. a human being. In order to act as a company director, a person must be at least 16 years old.

A corporate director is a limited company which is appointed to the post of director in another company. This is fairly common with joint venture companies, to enable each participating company to use any of their own directors to represent them at board meetings, and in many other scenarios (see below).

Will my company be affected?

Most trading companies will not have a problem, as the directors will be either the owners, for a typical small company, or senior employees for larger companies, or a combination of the two. The types of companies most likely to be affected are the less usual companies, such as flat management companies, companies which act as trustees or nominees, dormant companies bought “off the shelf” and companies run as non-commercial bodies such as clubs etc.

It is important to note that it is still perfectly legal to have one or more corporate directors, so long as there is at least one director who is a natural person.

Click on the link below and enter your postcode or the postcode of any company you wish to check. You can also search on company name and company number. This will show a list of companies currently at risk. If your search does not uncover any at risk companies, it will give a result of “no companies found”.

http://www.companiesatrisk.co.uk

What happens if a company is not compliant?

If a company does not have at least one natural director, it will, from 1st October 2010 (1st October 2008 for newer companies), be in breach of section 155 of the Companies Act 2006. This being the case, the Secretary of State can direct the company to resolve this matter. If it fails to do so within the specified time frame (from 1-3 months), the company and every officer of the company (directors and company secretary, if there is one) is liable to a fine of up to £5,000, along with a possible daily fine of £100 for continued contravention.

What should I do next?

If you are affected by these changes, prompt action to remedy the position is of course necessary. If this is the case, it may be a good opportunity to review the structure and legal format of the affected entity. Either way, please get in touch with Alan Sowden, or your usual contact at CRM.

 

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