What is the Law in Your Life?

5 things you should know about Enterprise Management Incentives.

1.   An Enterprise Management Incentive (“EMI”) is an option to purchase shares granted by a company to an employee which meets the various qualifying criteria and, therefore, qualifies for special tax treatments.

2.  EMIs offer generous tax advantages to both qualifying companies and participants, as follows:

• no income tax or National Insurance contributions ("NICs") on grant of the option;
• no income tax or NICs on exercise of the option (as long as the exercise price is set at a value equal to or greater than the market value of the shares on the date the option was granted);
• on disposal of the shares acquired pursuant to the EMI option ("EMI Option Shares"), the individual's gain is subject to capital gains tax at a lower rate than income tax;
• Entrepreneurs' Relief may be available on the disposal of EMI Option Shares, meaning gains on disposal may be taxed at just 10%. 

3.   There are a number of legal requirements which companies must satisfy in order for their share options to qualify as EMIs, including: 

• the company must carry on a "qualifying trade" in the UK;
• the company must not have gross assets exceeding £30 million at the time the share option is granted; and
• the company must have fewer than 250 full-time equivalent employees at the time the share option is granted. 

The shares used for EMI options can be subject to restrictions, but they must be ordinary shares which are "fully paid up" and not redeemable or convertible.

In order to qualify, participating employees must spend at least 25 hours per week or, if less, 75% of their working time, on the business of the company. Individuals with a “material interest” in the company, either on their own or together with one or more associates, are also unable to participate.

4.   Employees must be able to exercise EMI options within 10 years. The option terms must be set out in a written agreement which must detail any restrictions on the shares.  The company must deliver, electronically, an annual return to HMRC in respect of the EMI options.

5.   It is recommended that companies establish the market value of the shares that will be put under option before EMI options are granted. The value can be formally agreed with HMRC, or the company can use its own valuation although it would then be open to HMRC to query this. HMRC must be notified electronically of any grants of EMI options within 92 days of the grant date. HMRC has 12 months to make enquiries as to eligibility. If it does not make such enquiries, and all information provided is correct, then the share option is deemed to qualify.

What is the Law in Your Life?

5 things you should know about the changes to the directors' disqualification regime.

1.  The Small Business, Enterprise and Employment Act 2015 ("the Act") has introduced a number of changes to the law relating to directors' disqualification. This blog post addresses some of the key changes.

2.  The Act introduces two new grounds for disqualification as a director: (1) proceedings will be possible against a director on the basis that he has been convicted overseas of certain offences connected with establishing and running companies; and (2) where a director has been disqualified in circumstances where his conduct makes him unfit to be involved in the management of a company and that director was acting on the directions or instructions of a third party, it will be possible to bring disqualification proceedings against the third party exerting that influence.

3.  There has been an expansion of the matters that a court must take into account when determining an application for disqualification, including a director's track record, the nature and extent of any loss or harm caused and their activities overseas. When determining whether a person's conduct as a director of a company makes them unfit to be involved in the management of a company, conduct as a director of any overseas company must now be considered.

4.  Where a company becomes insolvent: (1) insolvency practitioners will be obliged to report to the Secretary of State on the conduct of every director of the company at the date of the insolvency (and during the three previous years) and in that report, describe any conduct which may assist the Secretary of State in deciding whether to bring disqualification proceedings - previously, insolvency practitioners were only required to report if they felt that the director's conduct showed he was unfit to be involved in the management of a company; (2) the length of time during which disqualification proceedings can be brought against a director will be extended from two years to three years after the date on which the company becomes insolvent; and (3) courts will have the ability to order a person subject to a disqualification order to make a payment for the benefit of one or more creditors of the insolvent company, where the conduct of that person which led to his disqualification has caused the creditor(s) to suffer loss.

5.  Whilst the majority of the changes set out above were brought into effect on 1 October 2015, the changes relating to the reporting obligations of insolvency practitioners were not and, at present, there is no indication as to when these changes will be brought into force. 

What is the Law in Your Life?

5 things you should know about the Consumer Rights Act 2015 - Part 2

1. Misleading Information: At the moment, a consumer given misleading information is only able to pursue an action for misrepresentation. This is because such information does not form part of the contract. However, under the 2015 Act a more straightforward remedy for breach of contract is now available. Any spoken or written statements made by the trader about his service will be binding contractual terms. This includes both pre and post contractual statements, provided those statements related to the service to be provided.

2.  Unfair Terms: Where terms in a consumer contract are deemed unfair, they may not bind the consumer. The existing "fairness test" is retained in the 2015 Act, but terms relating to the price and contract subject matter will only be exempt if they are both transparent and prominent. For a term to be transparent it must be in plain and intelligible language. For a term to be prominent it must be brought to the consumer’s attention. Terms which allow the trader to determine the price after the consumer is bound will be presumed to be unfair

3. Enforcement: Enforcers of consumer law already have remedial powers against offending businesses. In particular, enforcers may seek to obtain civil injunctions ordering the cessation of infringing acts. They may, furthermore, bring criminal prosecutions. The 2015 Act extends the civil remedies available to enforcers by setting out a number of “Enhanced Consumer Measures” which may be sought. The incoming Enhanced Consumer Measures (“ECMs”) include: (a) reimbursement of financial loss; (b) publication of the breach on the business’ website, in its stores, or within the press; (c) publication of the breach on the Trading Standards website; and (d) orders for the remediation of the business’ internal practices. Please note that details of possible measures are not included in the 2015 Act. The guidance published by the Government in relation to the ECM’s explains the reason for this is to ensure that “the enforcer or the court retain the flexibility to find the most appropriate measure or measures to deal with a business that has broken the law”.

4.  Secondary Ticketing:  The 2015 Act beefs up the regulation of the secondary ticket market by introducing new requirements.  For example, resellers and operators of resale facilities will need to ensure purchasers are provided with basic information on each ticket for sale, including the row/seat number it relates to, any restrictions as to who it can be used by (for example, any age limit applicable) and its face value.  Local authority trading standards will be responsible for enforcing these new provisions and will have the power to impose fines on sellers and secondary ticketing platforms who fail to comply.

5.  The 2015 Act is expected to come into force on 1st October 2015 (with the exception of the secondary ticketing provisions which are already in force) so businesses should take steps now to review existing consumer related practices and terms and conditions. 

What is the Law in Your Life?

5 things you should know about the Consumer Rights Act 2015 - Part 1

1.  The 2015 Act applies to contracts between a trader and a consumer, and not to business to business or consumer to consumer contracts.

2.  Under the 2015 Act, consumers will have new rights in respect of faulty or not as described goods, services and digital content

3.  Goods: Terms will still be implied into consumer contracts that goods will be of satisfactory quality, fit for a particular purpose, and as described. Businesses cannot contract out of these terms.  Consumers will have the “short-term" right to reject goods that are faulty or not as described within 30 days. Consumers will have the right to request that faulty or not as described goods are repaired or replaced (even after the 30 day right to reject period has expired). Consumers will have the right to a reduction in the price or to reject the goods after one unsuccessful repair or replacement.  Traders may be entitled to make a deduction in respect of any use the consumer has had of the goods before they are rejected in certain circumstances.  As a general rule, no deduction can be made if the consumer exercised their “final right to reject” within the first 6 months although certain goods are exempt from this rule, including motor vehicles.

4.  Services: Terms will still be implied into consumer contracts for the supply of services that: the service will be performed with reasonable skill and care, the price will be reasonable if not agreed, and the service will be performed within a reasonable period if not agreed. Businesses cannot contract out of these terms. If the service is not performed with reasonable care and skill, or it does not conform to pre-contractual statements made by the trader, consumers can require the trader to perform the service again to put it right. If a repeat performance is not possible or not repeated within a reasonable time the consumer has the right to a price reduction.  A consumer may also request a price reduction if services are not provided within a reasonable time.

5.  Digital Content: The 2015 Act introduces specific rights and remedies for paid for digital content or digital content that comes free with physical goods (but is not otherwise available for free). It does not cover internet or mobile services that provide access to digital content. Digital content must be: of satisfactory quality, fit for a particular purpose, and as described. If not, consumers have the right to a repair or replacement, or a reduction in price.  Businesses cannot contract out of these terms.  Consumers are entitled to claim compensation if the digital content supplied by the trader damages their electronic device or other digital content so long as the consumer can show that the trader did not exercise reasonable skill and care.  In these circumstances, the trader must either repair the damage or pay compensation to the consumer.

What is the Law in your Life?

5 things you should know about interpretation of contracts:

1.  A contract between two parties will generally be interpreted according to its terms i.e. within the four walls of the document.

2.  The contract will be considered as a whole

3.  Where the words used in a contract are clear and not open to more than one interpretation, a court must give them their natural meaning and cannot substitute what it, or one of the parties, considers a more commercially sensible outcome.

4.  Where however there are two possible constructions of a contract, the court is entitled to prefer the construction which is consistent with business common sense and reject the other.

5.  Clarity is key when adjusting contracts in an effort to avoid possible ambiguity and therefore uncertainty.

What is the Law in your Life?

5 things you should know about The Legal Writings (Counterparts and Delivery) (Scotland) Act 2015:

1.   This eagerly awaited piece of legislation finally came into force on 1st July 2015.  In short, this means that execution in counterpart in now recognised in Scots law. For a brief overview of this Act, please see our blog “Electronic deeds and execution in counterpart”.

2.   Nominee: Under section 2 of the Act, the parties to a document executed in counterpart can nominate someone to take delivery of the counterparts. It is perfectly competent for a solicitor acting for one of the parties to take on this role and indeed this is what was envisaged when the Act was drafted.  With regard to the scope of the nominee’s role, the Act makes it clear that the nominee’s duty is to “hold and preserve” the counterpart(s) for the benefit of all the parties.  If a solicitor does take on this role, they should take care so as not to inadvertently breach their duty as a nominee. A solicitor could not, for example, withhold a counterpart on a client’s instructions without breaching their duty under section 2 of the Act.

3.   Delivery by electronic means: It is clear under the Act that parties can agree to deliver by fax/email only the signing page of the contract, once signed in counterpart. The Act also makes it clear that there must be something beyond the signature to show it is part of the correct document. One possible solution to this would be to insert a footer/header which would set out the full name of the contract, the version of the contract, and the date it was transmitted etc.

4.   Counterparts clause: Under the Act, there is no requirement to have a counterparts clause.  However, it would be good practice to have such a clause, at the very least to serve as an explanation to third parties such as Registers of Scotland or Companies House.

5.   Assembly of the document: Under section 1 of the Act, upon execution, the counterparts are to be treated as a single document which may be made up of both/all the counterparts in full OR one of the counterparts in full, collated with the pages on which the other counterparts have been signed. For obvious reasons, the first option would be a much more unwieldy document but either is competent.

What is the Law in your Life?

5 things you need to know about Passing Off:

1.   Passing-off is a common law action rather than a statutory cause of action and is used to prevent one party from using the goodwill associated with another party for their own benefit.

2.   Passing-off does not provide the owner of the goodwill with a monopoly in the mark or get-up, rather it protects the trader’s business against what can essentially be described as “unfair competition.

3.   There are three basic requirements to establish passing-off.  These are commonly known as the trinity test:

a.    that goodwill exists in his or her goods or services, in the area where infringement has taken place;

b.    misrepresentation by the infringer to the public such that the public are or are likely to believe that the goods or services offered by the infringer are those of the claimant; and

c.    that he/she has suffered damage or the likelihood of damage occurring due to the infringer’s misrepresentation.

4.   Once the trinity test is successfully established, there are a number of legal remedies available to the infringed party.  These are interdict, damages or an account of lost profit. It should be noted that the pursuer will not obtain all three remedies against the infringer and that they do not get the privilege of choosing which remedy they would like. This is of course, left to the Court’s discretion.

5.   The law of passing off is wide and also covers goodwill associated in slogans, visual images, domain names and other descriptive material.

What is the Law in your Life?

5 you need to know (from a company law perspective) about the Small Business, Enterprise and Employment Act 2015:

1.   The new PSC register.

Provisional implementation date January 2016

UK companies (other than companies which already report under the Disclosure and Transparency Rules) will be required to create and maintain a register of “persons with significant control” (“PSC”). The intention is that this register will be made publicly available provided the inspection is for a "proper purpose". A PSC register should include any person who (i) holds 25% or more of the issued share capital of a company, or (ii) who exercises 25% or more of the voting rights, or (iii) who is entitled to appoint or remove a majority of the board of directors, or (iv) any person who can exercise “significant influence or control” over the company. Companies will be required to file details of their PSC register at Companies House along with the new confirmation statement, envisaged as replacing the annual return (see further below).

2. Removal of the requirement for companies to file an annual return at Companies House.

Provisional implementation date April 2016

The annual return with a set date will be replaced by a confirmation statement, which must be filed at Companies House not more than 12 months from the previous statement of confirmation, incorporation or annual return. The filing period for the confirmation statement is reduced to 14 days from the existing 28 days for the annual return. The statement must confirm that all information required to be delivered by the company in respect of the relevant period has been delivered. Information includes changes to the registered office address, directors and company secretary’s details, directors’ residential addresses, statement of capital, details on register of members and of the PSC register

3. Option for private companies to keep statutory information on a central register.

Provisional implementation date April 2016

Instead of keeping their own registers, private companies will have the option to keep certain statutory registers on the central register, kept by Companies House, The scope of the information includes the registers of members, the PSC register, the register of directors, the register of directors’ usual residential addresses, and the register of secretaries. A company may only elect to keep its register of members on the central register if all members agree.

4. All company directors to be natural persons

      

Provisional implementation date October 2015

All directors will be required to be natural persons. Existing companies will have 12 months to comply and once this 12 month period has passed, any director appointment that is not a natural person will automatically cease. The Secretary of State can make exceptions to this general rule and the approach to exceptions will be finalised after the General Election on 7 May 2015.

5. Protection of date of birth information.

Provisional implementation dates October 2015 (directors) and April 2016 (PSCs)

Complete date of birth information held by Companies House will no longer be made available to the public (just the month and year) to make identity theft more difficult. Companies will still need to send Companies House full details of the dates of birth of their directors and PSCs and this information will remain available for inspection on the register held by the company.

Electronic deeds and execution in counterpart

The Legal Writings (Counterparts and Delivery) (Scotland) Act 2015 (“the 2015 Act”) has been passed and received Royal Assent on 1 April. It is expected to be in force from early May. This change to Scots law sits alongside the changes introduced by Part 10 of The Land Registration Etc. (Scotland) Act 2012. Part 10 of the 2012 Act essentially e-enables all the documents referred to in s 1(2)(a) of the Requirements of Writing (Scotland) Act 1995 and thus permits electronic documents to have equivalent status and standards of validity and authenticity to paper documents. The Electronic Documents (Scotland) Regulations 2014 set out the requirements for electronic signatures. It also provides for electronic registration in the Keeper’s registers.

Once the 2015 Act is in force, parties to documents governed by Scots law will be able to be sign a separate identical copy of the document rather than all parties to the document signing the same physical document either at the same time or at different times. This brings Scots law into line with the position in English law. In addition, any paper document will be able to be delivered electronically with full legal effect. Indeed, the document can also be signed electronically if a qualifying electronic signature is being used. For comment on the secure digital signature facility contained within The Law Society of Scotland’s Smartcard see www.lawscot.org.uk/smartcard  

A document executed in counterpart will only become effective if delivery (which can be by electronic means) is made by each party of its signed counterpart to the other party or parties. It is possible for the parties to any document to agree that the document or obligations in it will not become effective until a later specified date.

Once all parties have signed, the document will consist of either (i) all of the signed counterparts put together in their entirety or (ii) simply one full copy of the document attached to the signing page from every counterpart signed by the parties.

As mentioned above, the new law makes it clear that documents created and signed on paper can be delivered electronically and have full legal effect.  This removes concerns that existed that electronic delivery was not sufficient -  a view, whilst correct, that was out of step with modern business methods.

A document once executed in counterpart can be delivered electronically without any need for special clauses or changes to the  document itself.  It is, however, essential that it is clear from looking at a document when it came into effect. Therefore, the date when the document has legal effect will need to be inserted. This date will either be the date when the last of all counterparts have been delivered or a separate later date as agreed  by the parties. In either case, that date needs to be inserted in the document. It will be interesting to see if practice develops along the lines of that which is common in England where a date is inserted on the first page of the text of the document. Above all however, parties and their solicitors must ensure that there is no dubiety as to when the document actually came into effect.

The introduction of execution in counterpart in Scots law is a welcome development which is widely supported by both business and the legal profession. The Scottish Law Commission is to be congratulated for advancing its consideration over a relatively short period of time.

New land and property information system for Scotland

Deputy First Minister John Swinney has announced the development of a land and property information hub for Scotland.

The Keeper of the Registers of Scotland (RoS), Sheenagh Adams, will lead a task force to develop an online system that will allow users to find out comprehensive information about any piece of land or property in Scotland with a single enquiry. The task force has been asked to report to the Deputy First Minister by July this year.

Sheenagh Adams said: “The creation of a land and property information system for Scotland is an exciting development that fits with our current project of completing the land register. Not only will this system make our economy more efficient, but it will reduce both the risks and costs of doing business. Developing the system will involve providing access to the data contained across a wide range of sources. This will remove the current costs and barriers sometimes involved with searching for land and property information.”

Professor Stewart Brymer has agreed to be a member of the task force in his capacity as Chair of Unifi Scotland (www.unifiscotland.com) He commented: “We have a great opportunity to build a spatial information system in Scotland that could be the best in the world. The data is all available but it is held in a range of disparate places. Bringing it together will benefit the economy and increase the knowledge that citizens should have about land and property. There are some excellent systems in other countries such as Norway which can be learned from in creating a digital land and property information service in Scotland.”

What is the Law in your Life?

5 things you need to know when choosing a name for your company or LLP:

1.   Your name cannot be identical to that of another registered company/LLP. Your name must also not be “too similar” to another name on the Companies House register. When considering whether your name is the same as a name that is already registered there is a list of words, characters, and symbols which are disregarded (eg United Kingdom and Great Britain). (Following recent changes in the law (January 2015), a number of words have been deleted from this list. The words Exports, Holdings, Imports, Group, International, and Services are now no longer on the list.).

2.   If your proposed name contains a “sensitive” word or expression (eg the word Scottish, English, British, etc) you must get prior approval from the Secretary of State. Likewise, if your name might indicate a connection to a public authority. The recent changes in the law referred to above have also reduced the list of sensitive words and expressions that require prior approval.

3.   Names that are offensive or use of which would constitute a criminal offence cannot be used.

4.   The names of most private limited companies must either end in “Limited” or “Ltd”. You can, however, apply to leave “limited” out of your name if the company is limited by guarantee and it fulfils certain conditions.

5.   You are prohibited from using the name of a previously insolvent company. You also cannot use a similar name to a previously insolvent company for a period of five years from the date of the first company’s insolvent liquidation.

What is the Law in your Life?

5 things you need to know about Irritancy in a Lease:

1.   An irritancy or forfeiture clause is a contractual termination clause whereby the lease will come to an end if certain prescribed events occur.

2.   The landlord's ability to terminate a lease is now controlled by statute in the event of non- payment if rent and breach of obligations assumed by the tenant.

3.   Statute the now provides for periods of notice to be served by the landlord under threat of irritancy. Care should be taken with the service of such notices.

4.   If a head lease is irritated, any derivative sub-leases also fall unless protection for sub- tenants has been pre-negotiated.

5.   Secured creditors or insolvency practitioners are not protected unless there is express provision to this effect in the lease.