Abolition of corporate directors: companies can’t have other companies as directors

Every director of a UK company will have to be a living, breathing person under changes to company law made by the Small Business, Enterprise and Employment Act 2015. Subject to any exceptions to be set out in regulations (which have not yet been published), it will no longer be possible for a company to act as a director of a UK-incorporated company. Currently, UK companies must have at least one natural director but the other directors may be non-natural entities.

This change is expected to come into effect from October 2015. There will be a 12 month grace period for existing non-natural directors (i.e. until October 2016) after which time their directorship will automatically end.

The Government has consulted on a carve-out for companies within listed groups. It received overwhelming feedback promoting the benefits of corporate directorships within large groups, including:

• reduced administration costs – one large group estimated that the use of corporate directors save it £1.1m per annum;
• providing expert advice – allowing a company to provide different experts to the board depending on the agenda of each meeting; and
• multiple signatories – ensuring that there is always a readily available signatory for key documentation (individual directors often being affected by absence or travel commitments).

As a result, the Government is seeking views via an online survey on a further “principles-based” carve-out where all the directors of a corporate director are in turn natural persons (and, if that exception is extended to overseas corporate directors, that 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 accessible register). The survey closes on 27 April 2015.