Author: Charles Wander
In early 2014 we are expecting the government to publish its formal response to the Department for Business Innovation & Skills’ Transparency & Trust” discussion paper published in July 2013.
One of the proposals in the discussion paper is to create a central registry of beneficial company owners. The paper followed the UK-chaired G8 summit in June 2013, where the government committed to increased transparency by requiring that beneficial company ownership be disclosed.
In a press release published on 31 October 2013, the government announced plans that details of the beneficial owners of UK registered companies would be made publicly available.
Business Secretary Vince Cable stated:
“We believe a public register, listing those who really own companies, makes Britain a better place to invest and do business. People have a right to know who controls UK companies and greater openness will help tackle tax evasion, money laundering and other crimes.”
The intention is that increased transparency will make it more difficult for individuals to use companies to carry out criminal activities such as money laundering, tax evasion, corruption and terrorist financing. Furthermore, it is intended that this should lead to greater trust and confidence in the UK market, which in turn would result in greater investment and consumer confidence.
At present UK companies are required to maintain a register of their legal owners and the same information must be disclosed to Companies House by way of an annual return. Under English law the legal and the beneficial ownership of a company can be separated so that the registered legal owner may hold the shares as nominee or on trust for another person, and the Companies Act 2006 specifically provides that no notice of any trust shall be entered on the register of members of a company.
The discussion paper uses the definition of beneficial ownership set out in the Money Laundering Regulations 2007, so that the registry would hold information on any natural person who owns or controls more than a 25% interest in the company’s shares or voting rights. This could also include an interest held by several individuals who collectively hold more than 25%, where those individuals have agreed to act in concert.
The requirements would apply to companies incorporated in the UK and possibly LLPs. The requirements would not apply to non UK companies operating in the UK or to companies listed on a regulated market, as they are seen as already being subject to stringent regulation and transparency disclosure requirements.
The information on beneficial interests would be maintained by Companies House and would form part of the information companies are required to disclose under statute. It is proposed that companies would be required to hold details of the names, addresses and shares held of its beneficial owners. The names and shareholdings of the relevant beneficial owners would need to be provided to Companies House. In line with the current regime for legal ownership this information could be provided on incorporation and on a periodic basis thereafter.
The discussion paper highlights the importance of ensuring that the information provided is accurate. The Companies Act 2006 provides that it is an offence for a person to knowingly or recklessly deliver misleading, false or deceptive information to Companies House. The discussion paper had initially raised the question whether the information should be made public or not, and one of the arguments for making it public was that the information being open to public scrutiny helps to ensure its accuracy.
Exceptions to the general requirement to disclose beneficial owners may apply where there is a risk to an individual’s safety, such as the beneficial owners of companies that carry out animal testing. This is similar to existing privacy safeguards for company directors.
Regulated entities would still have to carry out their usual money laundering checks on the beneficial ownership of client companies.
The discussion paper also sets out proposals to abolish bearer shares, as these types of shares enable individuals to avoid having their details recorded in the company’s register. It is also proposed that there would be a period of time where bearer shares would be converted into ordinary registered shares. The discussion paper also looks at curbing the use of nominee directors, either by requiring such relationships to be disclosed or by making it a specific offence for a director to divest their duties as a director by signing a legal document to appoint a nominee.