On 16 April, the Government published a response to its discussion paper on enhanced transparency of UK company ownership and increased trust in UK business.
The key proposals adopted by the Government include:
- creation of a central registry of beneficial ownership of UK companies
- abolition of bearer shares
- ban on the use of corporate directors
- managing the use of nominee directors
Central registry of company owners
The legal ownership of UK companies is already publicly available information in annual returns. The Government intends to launch a new public registry of company beneficial ownership information which will require companies to identify its beneficial owners and show who really owns and controls a company.
Beneficial ownership will be defined as an individual with more than 25% of the shares or voting rights in the company, or individuals who exercise control over the management of the company. Where a qualifying interest is held through a trust, only the trustees or any individuals who control the activities of the trust will need to be registered. In most cases this will not require disclosure of the ultimate beneficiaries of the trust.
The public register, held at Companies House, will include the following information on beneficial owners:
- full name
- month and year of birth
- country or state of usual residence
- a service address
- date on which they acquired the beneficial interest in the company and details of that interest and how it is held
Companies will also have to maintain their own register of beneficial owners, which will also include the full date of birth and residential address. Under new proposals to simplify company filing requirements, however, companies may opt out of this requirement - for further information, see Proposals to simplify company filings.
This new requirement will also apply to limited liability partnerships (LLPs). However, there will be an exemption for companies which are subject to the Disclosure and Transparency Rules or whose shares are listed on a regulated market and which are subject to equivalent disclosure requirements.
Abolition of bearer shares
Bearer shares allow shareholders to conceal their interest, as proof of ownership is evidenced by possession of a share certificate rather than by recording personal details on a register of members.
There will be a ban on on the creation of new bearer shares and the compulsory cancellation of existing bearer shares. The Government intends to set a 9 month period during which existing bearer shareholders will be required to surrender their shares for conversion to registered shares. After this set period for surrender, companies will have to make an application to court for the cancellation of bearer shares.
Corporate and nominee directors
In line with its concerns over the use of corporate directors as a means of concealing corporate control, the Government is proceeding with the requirement that directors must be natural persons. There will be some exceptions to this ban on corporate directors, such as for charities and for group structures involving large companies, although full details of the exceptions are not yet known. A one year transitional period for compliance with the new regime is proposed and the Government is considering whether LLPs should also be subject to the ban.
Nominee directors will still be permitted but, in a move designed to deter irresponsible 'front' directors, the Government intends to increase awareness of directors' statutory duties and tighten the directors' disqualification regime. Those persons on whose behalf the nominee director acts may also find themselves accountable as the Government considers extension of the 'shadow director' concept and application of directors' statutory duties to those who exercise control over a single director.
What does this mean for you?
Although it may be perceived as inconvenient, the drive for transparency is an international one, so UK law is reflecting wider good intentions.
For most companies, whose ownership and control is already transparent, the requirement to obtain beneficial ownership information initially and to maintain and submit this to Companies House will undoubtedly create an ongoing additional burden. The proposals to simplify company filing requirements will soften the blow, but companies will still be required to update the information in their register with any changes and confirm that the information is correct at least once a year. It will mean that individuals who want to retain any confidentiality will need to review how assets are held.
Once legislation is in place, there will be a 2 month period before the ban on bearer shares comes into force. For companies with existing bearer shares, discussions with bearer shareholders should take place before and during this time to encourage surrender. Any surrender should be completed within the 9 month period to avoid a need to make a court application to cancel the shares. Tax advice may need to be taken.
Use of corporate directors is widespread. As yet, there is no proposed timescale for introduction of their prohibition but companies who act as corporate directors, and those whose directors include corporates, should keep a close eye on the proposals to ensure that any necessary changes to the board are made in good time.
For the majority of nominee directors, whose appointments are for legitimate purposes and who already operate within the statutory duties, there will be relatively little change. The same is true of those who appoint them, although the proposed extension of the shadow director concept will be one to watch.
To read the Government's response document, see: https://www.gov.uk/government/consultations/company-ownership-transparency-and-trust-discussion-paper