Corporate transparency – no place to hide?

Posted: March 30, 2015

Some fundamental changes are currently proposed to UK company law which will expose the identities of those involved in the ownership and management of companies.  The government’s Small Business, Enterprise and Employment Bill (Bill) is moving closer to enactment and aims to ensure that the UK continues to be recognised globally as a transparent, “trusted and fair place to do business”.1

Disclosure of beneficial owners

At the moment, only registered owners of UK-registered companies are on the public record at Companies House (the UK registrar of companies).  If, however, the Bill is enacted, information on beneficial ownership will also be publicly available, as companies will be required to keep a public register of “persons with significant control” over the company (the PSC Register).2

The government’s provisional implementation plan is to make companies maintain the PSC Register from January 2016, and to make the information public at Companies House by April 2016.

In broad terms, a “person with significant control” is an individual that alone, or as a joint holder, meets one or more of the following conditions:

  • the individual holds, directly or indirectly, more than 25% of the shares in the company;
  • the individual holds, directly or indirectly, more than 25% of the voting rights in the company;
  • the individual holds the right, directly or indirectly, to appoint or remove a majority of the company’s board of directors;
  • the individual has the right to exercise, or actually exercises, significant influence or control over the company; and/or
  • the individual has the right to exercise, or actually exercises, significant influence or control over the activities of a trust or firm, and the trust or firm meets one or more of the above conditions (or would do if it were an individual).

There is expected to be statutory guidance on the meaning of “significant influence and control”.

The Bill requires companies to investigate, obtain and update information on those who should be registered on the PSC Register.  The company must then give notice to anyone that it knows, or has reasonable cause to believe, qualifies for registration, requiring the person to state his or her position and to supply appropriate details.  If these steps are not taken, an offence will be committed by the company and every officer in default, which is punishable by a fine or imprisonment.

The Bill also places a proactive disclosure obligation on registrable people if they know, or ought reasonably to know, that they should be identified on a company’s PSC Register.  Again, it is an offence not to comply with this duty.

If a registrable person fails to comply with a company notice, or with his or her own disclosure obligations, the person can also be disenfranchised from the company.  In these circumstances, the company can issue a “restrictions notice”, which can cause the person to be blocked from transferring shares in the company, voting or otherwise exercising share rights and receiving dividend payments.  A court order is required to lift the restrictions.

Abolition of bearer shares

The Bill also imposes a ban on the creation of new bearer shares.  The government views this change as an easy preventive step against people hiding their interest in companies to facilitate illegal activities.  Companies that do have bearer shares in issue will need to follow a complex procedure to cancel them or to convert them into non-bearer shares.  The government hopes that these provisions will be in force within two months after the Bill is enacted.

Abolition of corporate directors

At present, as long as a company has at least one director who is a natural person, a company can have corporate directors.  Under the Bill, however, all directors must be individuals (and the appointment of corporate directors will be prohibited).  All existing corporate directors will be required to cease being directors after a one-year transitional period.  The Bill reserves power to make exceptions to this general requirement, but no exceptions have been established to date.  The prohibition of corporate directors (along with any exception) is intended to come into force by October 2015.

Comment

Anyone who has set up a corporate structure designed to protect the identity of an owner or manager of a company for privacy reasons should carefully consider the position under the proposed new rules.

If you would like advice or further information on these transparency measures, please contact Caroline Copeland.

  1. The Bill is currently at the last stage in its progress through Parliament before it can receive royal assent and become enacted.  Final amendments were made to the Bill during the third reading in the House of Lords on 17 March 2015.  The Bill will now go to the House of Commons for consideration of the House of Lords’ amendments.
  2. In general terms, only companies that have securities listed on a regulated market will be exempt.