Brexit – the prospective changes in company law for private and overseas companies
05 February 2020
This article is to update you on, and explain the expected timing as to, the changes in company law for private and overseas companies to be brought about by the UK’s withdrawal from the EU. In practice, only companies with a connection to the EEA will be impacted and the action points for them will be fairly minimal.
The timing of these changes
Under the European Union (Withdrawal Agreement) Act 2020, the changes summarised below are expected to take place on or by reference to the end of the implementation period, expected to be 11pm UK time 31 December 2020 (the switch over date).
Read on if you are an owner or manager of a private company incorporated in England and Wales or if you are an overseas company incorporated in the EEA (EEA overseas company).
What are the changes?
Here is a summary. There are similar provisions for LLPs:
- EEA overseas company - removal of reduced requirements as to information filings, and disclosures in business communications and websites and names (as compared with a non-EEA overseas company). Three months to address the changes.
- EEA overseas company that is a director or secretary of a UK company - removal of reduced filing requirements (as compared with a non-EEA corporate officer). Three months to supply the additional information.
- Political parties and expenditure - removal of references to the EU, so the requirements for shareholder authorisation will only apply to UK elections and referendums.
- No more EU cross-border mergers involving a UK company - revocation of the EU cross-border mergers regime.
These accounts changes apply for financial years beginning on or after the switch over date.
- EEA overseas company - removal of the reduced requirements (as compared with other overseas companies) as to the production, audit and filing of their accounts.
- Reduced scope of these exemptions from producing accounts. They will only be available to UK subsidiaries of certain UK parents:
- accounts for a dormant UK subsidiary of an EEA parent;
- group accounts for an intermediate UK parent company with an EEA parent (instead the intermediate company may be able to take advantage of the existing exemption that applies if it has a non-EEA parent - that exemption will apply in future to all non-UK parents).
For more information, click here: The Accounts and Reports (Amendment) (EU Exit) Regulations 2019 (SI 2019/145) Explanatory Memorandum
- Reduced scope of the subsidiaries audit exemption. It will no longer be available to a UK subsidiary of an EEA parent. It will only be available to a UK subsidiary of a UK parent.
For more information, click here: The Statutory Auditors and Third Country Auditors (Amendment) (EU Exit) Regulations 2020 (SI 2020/108) Explanatory Memorandum
International Accounting Standards
- UK companies which use EU-adopted IAS, will need to use UK-adopted IAS for financial years beginning on or after the switch over date.
- There will be a national framework for endorsement and adoption of IFRS for use in the UK.
Just one more thing
This article is based on the Statutory Instruments, the Act and Government guidance available to us at the time of writing this. The negotiations on the future relationship between the UK and the EU during the implementation period may result in amendments to these anticipated changes. We will be watching the situation closely and will report again if appropriate.
Companies incorporated in the UK and EEA overseas companies will need to address the above noted changes, where relevant to them.
A UK company should also seek local law advice now, if it has not already done so, as to the effect of its connections with any of the remaining EU Member States (EU-27); for example if the company has an established place of business in any of the EU-27.
UK LLPs will have similar work to do.
For more information on the legal changes arising from Brexit in our other service areas, click here.
The UK left the EU at 11pm (UK time) on 31 January 2020, and the transition period came to an end on 31 December 2020. The Trade and Cooperation Agreement reached on Christmas Eve 2020 sets out the shape of the ongoing future relationship between the UK and the EU and provides some degree of certainty for UK businesses.
The changes and hence our recommended action points, as a result of Brexit, will be relatively minor under English and Welsh company law. In practice they will only affect companies with a connection to the EEA.