February News 2019 - Stanley Davis Group

February News 2019 - Stanley Davis Group




                           February 2019
February News 2019 - Stanley Davis Group
contents     Newsletter | February 19

01                             02
                               COMPANIES HOUSE
JANUARY 2019                   UPDATES
ACRA Director, Andrew          Changes at Companies
Davis, provides the            House from checks to
latest news from the           changes in advance of
ACRA forum.                    Brexit.

                               DEADLOCK AND
The UK government              Commonly pursued exit
recently published technical   strategies and exit
notes for businesses should    mechanisms for private
the UK leave the EU            limited companies.
without a deal next year.      Special clauses every
                               investor should know about.


Introducing the new
energy and
transportation and
CON29M reports from
February News 2019 - Stanley Davis Group
by Andrew Davis CEO, and ACRA

I recently attended the annual forum arranged by the
Association of Company Registration Agents (ACRA), our
industry body. Stanley Davis Group (or Stanley Davis
Company Services as it was back then) was a founder
member of ACRA when it was formed in 1975.

I now continue in office as a Director and Treasurer of the
organisation, and am heavily involved with the other
members of the Board in fighting the industry’s corner on
behalf of all the members in these difficult regulatory

     'The feeling is that together as an industry body we are stronger and can
        combat many of the things standing in our way more effectively and
                          collectively rather than on our own'

The Forum this year was attended by about 50 people from across the company registration industry. The
presentations came from three parties:

   HMRC, who talked about the risk-based                      The Registrar, Louise Smyth, then spoke about
   approach for TCSPs (Trust and Company                      her new role at Companies House, how
   Service Providers) and what we should all be               Companies House is now performing and about
   doing to comply with the Money Laundering                  some new initiatives and projects that are taking
   Regulations 2017;                                          place there (View our next article for more
                                                              information). We are being led to believe that
   The National Crime Agency (NCA), who                       new regulations concerning the anti-money
   talked about the regime for filing suspicious              laundering (AML) regime at Companies House
   activity reports (SARs), including the need for            are about to be announced, but Louise was
   filing them, when to file them, and what                   unfortunately not in a position to make that
   happens to them once they are filed;                       announcement just yet. We will of course keep
                                                              all of our clients updated.

The Forum is always very interesting and it was good to meet with many of our competitors and discuss
the matters that most concern us as an industry. Times for all registration agents and company service
providers are tougher than they have ever been, in particular with the AML regulations taking up so much
of our time and resources. The feeling is that together as an industry body we are stronger and can
combat many of the things standing in our way more effectively and collectively rather than on our own.

February News 2019 - Stanley Davis Group
The United Nations imposes financial sanctions on
individuals and corporate bodies because of the
nature of their activities, such as genocide and
terrorism. These individuals and corporate bodies are
called ‘designated persons’ (DPs). The UN sanctions
are included in EU and UK law to stop DPs using
“economic resources”, which include companies, for
those types of activities.

Companies House has announced that with effect
from 12th December 2018 they will check the details
of proposed directors, secretaries, members, and
people with significant control for any matches to a
designated person in an application to register a UK
company or LLP.

They will look at; the person’s full name, address, date
of birth, nationality and occupation, and the main
activities of the company either from the accounts or
the SIC code.

If Companies House has reason to believe these
details match those of a DP, then the registration will
be rejected for that reason. It will be possible to
reapply with evidence proving that there is no DP

This is different to the due diligence checks that we
have to perform with every new incorporation order,
under the Money Laundering Regulations 2017. As a
company service provider, we are regulated by HMRC
and directed, using an approach based on the risk to
our business, to check the validity of the identity of all
our clients and the directors and beneficial owners of
the companies we form. Companies House are not
obliged to carry out the same checks as it is assumed
to not be “carrying on business” but operates instead
under statute. We maintain that if the UK government
is serious over its intent to combat fraud and terrorist
financing, this argument is illogical at best and
reckless at worst.

February News 2019 - Stanley Davis Group
Changes to Companies House Systems and Forms
Companies House has now released notes of changes to its systems and forms that will be implemented
on the 29th March, ONLY in the event of a no-deal Brexit.

1. Corporate officers
From exit day, the references to and requirements for
‘EEA’ & ‘Non-EEA’ corporate officers will be modified
and replaced by ‘UK registered limited companies’ and
‘Other corporate bodies and firms’:
    i) A company or LLP which has a limited company
incorporated and registered in the UK as a corporate
officer will have to provide that corporate officer’s
name, registered or principal office address and its
registration number.
     ii) A company or LLP which has any other entity as
a corporate officer will have to provide that corporate
officer’s name, registered or principal office address,
the legal form of the company or firm and the law by
which it is governed and (if applicable) the register in
which it is entered and its registration number.
2. Confirmation statement
Minor modification to references to UK regulated
markets in sections C1 & C3 of form CS01.
3. Cross-border mergers
Cross-border mergers involving UK companies will no
longer be able to take place under the EU Directive
2005/56/EC - cross-border mergers of limited liability
4. Overseas companies
As the UK will no longer be part of the EEA, the
reporting requirements for overseas companies which
open a UK establishment will become the same
regardless of whether their ‘home’ country is inside or
outside the EEA.
The draft regulations (which are still to be debated) and a draft explanatory memorandum setting out the
legislative changes for all of the above can be found here: https://www.gov.uk/eu-withdrawal-act-2018-statutory-
5. Societas Europea (SE)
From the day of exit any SE registered in the UK will be automatically converted to a United Kingdom Societas
(UK Societas). No SEs will be formed, transferred into or outside of or registered in the UK after exit day. Any
converted SE can either remain as a UK Societas, converted to a PLC or wound up.
The regulations and explanatory memorandum setting out the legislative changes for SEs can be found here:

February News 2019 - Stanley Davis Group
Entrepreneurs Relief – Update to Key Changes
Following on from last year’s autumn budget where the
Chancellor announced two key changes to
Entrepreneurs Relief, which were:
   The qualifying holding period being extended from 1
   Year to 2, effective from 6 April 2019
   The qualifying shares must now entitle the holder
   thereof to 5% of dividend, and 5% of capital
   distribution, effective from 29th October 2018.

The government announced in December (2018) draft
amendments to the Finance Bill 2018-2019 that will
affect the entitlement of owners of alphabet shares
which are different classes of shares designated with a

The amendments drafted by HMRC to the Finance Bill are a positive development but at
the time of writing the Bill has not been passed and is currently with the House of Lords.

Initially, the key changes set out in the autumn budget      The amendment to the definition of a personal
resulted in the definition of a personal company including   company now includes the following:
two new conditions which were:                               'Either or both of the following conditions are met -
                                                             (i)   by virtue of that holding, the individual is
  an entitlement to at least 5% of the profits that are      beneficially entitled to at least 5% of the profits
  available for distribution and;                            available for distribution to equity holders and, on a
  an entitlement to at least 5% of the assets on winding     winding up, would be beneficially entitled to at least
  up of the company.                                         5% of assets so available, or
                                                             (ii) in the event of a disposal of the whole of the
These new conditions excluded owners of alphabet
                                                             ordinary share capital of the company, the individual
shares who have unequal dividends paid to
                                                             would be beneficially entitled to at least 5% of the
shareholders, which meant alphabet shareholders would        proceeds.”
not be eligible for Entrepreneurs Relief.
However, after considerable amounts of concern was           This amendment means a company with alphabet
expressed by professional bodies and industry                shares that is disposed of and their shareholders
individuals HMRC have proposed amendments to the             who have an entitlement to at least 5% of the
Finance Bill 2018-2019. Specifically, the definition of a    proceeds will qualify for Entrepreneurs Relief even if
personal company on page 28.                                 they do not pass test (i).

                      If you would like to discuss how the amendments to the Finance Bill will affect the new
                      set of drafted articles that we have prepared please contact us.

                      email: suzanne.alves@stanleydavis.co.uk
                      Tel: 0207 554 2261                                                                       5
February News 2019 - Stanley Davis Group
February News 2019 - Stanley Davis Group
special clauses every Private investor should know about
Investors and company founders can find themselves at a deadlock all too often if their
shareholders' agreement has not been drafted to sufficiently cover different eventualities. This is
particularly important when selling all or part of the company to a new investor, or transferring the
shares to a family member or employee.

Whether you are an investor whose key objective is to obtain a return on the money you have
invested as equity into a company, or a business owner/ founder who is succession planning,
there are various clauses you can draft into a shareholders' agreement to help you achieve a
timely and cost-effective exit from the business.

In this article we will be discussing the most commonly pursued exit strategies and exit mechanisms
for private companies limited by shares. We would recommend any investor review a shareholders
agreement before investing in a company. For existing businesses, it always worth having an expert
review of the shareholders agreement every few years to ensure it is up to date for present and
potential future purpose.
If you would like to speak to us about a shareholders' agreement please get in touch with
our company secretarial team: 0207 554 2261

                                                 Selling Shares in a Private Limited Company

                                                 Drag and tag along clauses

                                                    Drag along rights allow (usually) a majority
                                                    shareholder, or investor to force the remaining
                                                    shareholders to accept an offer to buy their shares
                                                    from a third party and to force the holders of the
                                                    remaining shares to accept such an offer at the same
                                                    time and at the same price for each share. The aim is
                                                    to provide liquidity and an exit route to the majority
                                                    shareholder or investor.
                                                    Tag along rights also known as piggyback rights
                                                    enable certain shareholders (usually minority
                                                    shareholders) to force other shareholders (who wish to
                                                    sell their shares) to procure an offer for their shares
                                                    benefiting from the rights. The tag along rights act as
                                                    protection for the minority holders in case the majority
                                                    chooses not to exercise its drag along rights.

February News 2019 - Stanley Davis Group
Buy out by fellow shareholders, or the company
The pre-emption on transfer of shares clauses, if          Surrender of shares If shares are partly paid, the
included in the company’s articles, oblige a               company may forfeit such shares or accept those
shareholder wishing to transfer his or her shares to       shares to be surrendered in lieu in accordance with
inform the other shareholders of all the details of the    the company’s articles and for failure to pay any
offer made by the potential purchaser and to offer         sum payable in respect of the share.
his or her shares for sale to the remaining
shareholders, who will have a priority to buy the
offered shares. If the existing shareholders decline
to purchase the shares, the shares in question may
be offered to the third party potential purchasers.

Put and call options grant a right (but not an
obligation) for a potential buyer, or a potential seller
to acquire, or sell shares at a specified price (or a
price to be calculated in accordance with a pre-
agreed formula). The option is generally exercisable
during a specified period. For example, if A has a
call option enforceable against B, A can require B to
sell B’s shares to him.
A put option provides a safety net for a shareholder
by guaranteeing that his or her shares can be sold
at a set price for a limited period of time.

Share buyback. To enhance share liquidity and to
provide an exit route for shareholders, the
company's articles may provide for preventing the
shareholder from selling his shares to a third party
(at least in the first instance) and specifying that, if
the remaining shareholders do not want to purchase
the shares from the shareholder seeking to exit, the
company can repurchase the shares itself.

Gifting Shares Where a shareholder wishes to exit
the company, but there is no buyer for its shares, it
may be appropriate for a shareholder to return its
shares to the company for no consideration that is,
gifting the shares back to the company. A gift of
shares would have to be approved by the board.
Unless the company that has received the gifted
shares intends to transfer them to a third party,
normally, shares gifted to a company will be

                      For Advice on Shareholders' Agreements and Exit Strategies
                      Please Contact Our Legal Manager Mel Jeczelewska
                      Email: mel@stanleydavis.co.uk
                      Tel: 0207 554 2273                                                                         7
February News 2019 - Stanley Davis Group
Permitted transfers of shares to designated
persons such as family members
It is often tax efficient to transfer assets between
spouses or civil partners to take advantage of the
other spouse's or civil partner's marginal tax rate. To
take advantage of such tax savings, permitted
transfers of shares provisions should be considered,
which will allow a shareholder to transfer his shares
to a restricted group of individuals without the need
to go through the pre-emption requirements on
transfer of shares. This is typically restricted to close
relations (for example, a spouse, civil partner,
children and grandchildren), or to the trustees of a
family trust.

Permitted transfers should not be confused with
compulsory transfers. The latter are designed to
protect the remaining shareholders where specified
events happen to a shareholder, for example, the
death of a shareholder, bankruptcy, cessation of
office (e.g. a company’s director), cessation of
employment, or a shareholder breaching the
shareholders’ agreement.

Irreconcilable conflict over the management
of the company
Where a conflict arises over the management of a
company and neither party has a majority of votes,
carefully designed deadlock provisions will provide
resolutions for such situations. The deadlock
clauses set out the rules for referring the dispute to
an outside expert (for example the company’s
lawyer, or accountant), or one of the parties to
either dispose of their shares, or that the company
terminates entirely. Such clauses are normally
included in shareholders’ agreements.

     In practice, many of the above-mentioned issues are not addressed in the agreements that are
   concluded at the outset of setting up a small business. Experienced investors will invariably seek a
              sensible precaution rather than an optimistic way in which to start a business.

                      For Advice on Shareholders' Agreements and Exit Strategies
                      Please Contact Our Legal Manager Mel Jeczelewska
                      Email: mel@stanleydavis.co.uk
                      Tel: 0207 554 2273                                                                  7


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dealing with quotes, engaging with your clients

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LONDON,      SE11   5SS

9AM -1 PM

HMLR will also give an update on its Local Land

Charges Project and be open to a Q & A around

registration issues.

The event is free and qualifies for 3 hours CPD

however places are limited to 25 per venue so we

highly recommend you book asap to avoid


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                        Tel: 0207 554 2253

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