The Government is proposing to force companies and LLPs to detail exactly who their shareholders (or members) are, in a bid to make it clear who really owns or controls them
A number of significant changes have been proposed by the Government in relation to companies and LLPs. One of the most radical is to force these entities to detail exactly who their shareholders (or members) are, in a bid to make it clear who really owns, or controls them.
The 25% test
The proposals are for UK incorporated companies and LLPs to make public details of their “beneficial owners” (meaning those with an ultimate ownership or control of 25% of the shares or voting rights of a company, or any individual who otherwise exercises control over the management of the company). It is further proposed that where the company either knows or has reasonable cause to believe that there is any other beneficial owner, it has a duty to acquire the relevant information on that individual as well.
These proposals follow longrunning campaigns by individuals and organisations to obtain increased transparency and accountability in relation to corporate structures, and were detailed in the Department for Business, Innovation & Skills (“BIS”) discussion paper on Transparency and Trust following the Lough Erne G8 summit in June 2013 (feedback on the paper was published in April 2014). At G8, after discussions on trade, tax and transparency, a number of core principles were agreed that aim to prevent tax evasion and detail the real owners of companies. The principles are consistent with Financial Action Task Force standards.
Register of beneficial owners
The BIS paper proposes that a central registry of information will be created in order to detail company beneficial ownership. Companies will be required to keep (and update) their own register of beneficial owners and also provide this information to Companies House. The Government is also considering requiring information on incorporation (in relation to proposed beneficial ownership). This register will contain details of each owner’s full name, date of birth, nationality, country, residential address, service address, date on which the beneficial interest was acquired, what that interest is and how it is held.
The register will be publicly available (aside from the residential address and full date of birth). There is mention of preventing public disclosure in exceptional circumstances, but certain UK and other enforcement agencies will still be able to access the information. At present the proposals are to be similar to existing procedures – the registrar is to review applications to prevent public disclosure, seek additional information as required, then decide whether to grant the application.
Under the proposals bearer shares will be prohibited, and a period of time will be given for existing bearer shareholders to surrender their shares for conversion to registered shares. Once that period expires, it is intended that companies with bearer shares will need to apply to court for an order to cancel those shares.
BIS makes further plans in relation to directors, including:
- prohibiting corporate directors (unless in a low risk area that performs “a beneficial and legitimate business function”, e.g. in large corporate groups);
- proposals to tackle those who control an irresponsible “front” director (mention is made of using nominee directors in order “to obscure control and avoid clear lines of responsibility to no good end”), and possibly extend the general statutory regime for directors to those in control;
- revising and updating the directors disqualification regime;
- proposals to allow insolvency office-holders to assign or sell rights of action against troublemaking directors (in order to benefit creditors).
The Government has stated that it plans to legislate as soon as parliamentary time allows, and that transitional arrangements will be considered (especially in relation to existing companies) at that time. The Transparency and Trust proposals are planned to work in conjunction with another BIS paper in relation to company filing requirements. The latter paper, for example, contains proposals to abolish the need for annual returns to be lodged at a certain date each year, and adopt a “check and confirm” every 12 months, and/or “notify when changes are made” approach, in order to reduce duplication and complexity for businesses.
Solicitors and other regulated entities are accustomed to obtaining information in relation to beneficial ownership as part of normal anti-money laundering checks. However, disclosing that information publicly, which might ordinarily have been kept confidential for commercial or other legitimate reasons, will greatly impact certain clients, meaning forward planning and advice will be needed. It is worth noting that amongst other issues on which opinion is sought, the Government has advised it would welcome views in relation to the impact of disclosure on trust arrangements, LLP partnership agreements and shareholders' agreements.
Emma Arcari, solicitor, CCW LLP