UK: Transparency In UK Company Ownership: An Update

Last Updated: 31 July 2014
Article by Anthony Turner

On 21 April 2014, the Government published its response to an original discussion paper from July 2013 "Transparency & Trust: Enhancing the transparency of UK company ownership and increasing trust in UK business."  In this response, the Government confirmed that it intends to proceed with the majority of the proposals in that paper, the most interesting of which relate to the proposal to put in place a public register of beneficial interests in UK companies, and to impose mandatory obligations on UK companies and beneficial owners to disclose any such interests.  This is a relatively radical change to current English law where, although there are fairly full disclosure obligations in relation to directors and legal shareholders (i.e. those whose names appear on the company's register of shareholders), the beneficial holders of shares are largely ignored.  These changes will therefore affect anyone who directly or indirectly owns, is entitled to or controls more than 25% of shares in a UK company. 

The background to the proposals is the Government's desire to enhance transparency and accountability for business in the UK, with the intention of improving corporate governance and therefore trust.  The intention is to promote UK business but also to tackle what the Government perceives as the use of companies for criminal purposes, including money laundering, tax evasion and corruption.

These proposals form part of a wider international movement largely driven by the G8, but the UK sees itself as leading from the front.

Central Registry of Company Beneficial Ownership

  • Every UK company will be obliged to maintain a register of individuals who ultimately control, or own, more than 25% of that company's shares.  The proposals affect private and public companies, and also cover limited liability partnerships.  Certain listed public companies are exempt, on the basis that they are already subject to more onerous reporting requirements.
  • The definition of beneficial owner will be borrowed from existing anti-money laundering regulation, namely: an individual who ultimately owns or controls more than 25% of a company's shares or voting rights, or who otherwise exercises control over a company or its management.  This will therefore include joint holdings and where a beneficial owner holds shares through a number of different entities.  The Government appreciates that this definition, in particular the definition of "control", may need to be refined so that it can operate sensibly in practice.
  • A company will be obliged to identity beneficial interests, where they are held through a significant shareholding or where the interest is otherwise known to the company (presumably, for this purpose, this will include the knowledge of directors of the company).  Therefore it seems that there will be some limit on the work a company will be obliged to carry out where it does not know of that beneficial interest or it has no reasonable cause to believe that there are any individual beneficial owners of more than 25%.  An example of this may be a number of small shareholdings which ultimately lead to one beneficial owner but this is not known (or suspected) by the company.  A company would also need to look at different share classes to determine whether the test has been met.
  • Where the beneficial interest is held in a trust, the trustee(s) or other individuals who control the trusts should be recorded as the beneficial owner.  The rationale for this is that they are the persons with control and therefore, if control were to be in the hands of another party - such as a beneficiary, protector or settlor - then arguably the identity and details of that person will need to be disclosed.  In the case of trusts, much will therefore depend on the drafting of the relevant trust deed and the definition of "control" in the legislation.  Note that the European Union has published parallel proposals which would require trustees of express trusts to hold information on settlors, beneficiaries and protectors and, although there is no suggestion that this information needs to be disclosed on a company's register, this information would nonetheless need to be held by the trustees.
  • The information of the individual beneficial owner required to be disclosed is broad: full name; date of birth; nationality; country of residence; residential address; service address; the date on which the interest was acquired; and details of how it is held.  Interestingly, this information is much more detailed than legal shareholders of companies are currently required to disclose and therefore, under the new rules, beneficial owners will be subject to greater disclosure obligations than legal shareholders.
  • This information will need to be disclosed to Companies House, the register of companies. 
  • The consultation considered whether or not the information should be made public and the decision is yes, it should be.  With the exception of the residential address and date of birth, all of the disclosed information will be available to the public, and the Government wants to make this access as easy and cheap as possible.  In exceptional cases the information may not be made public by Companies House but this will be considered on a case-by-case basis.
  • Companies will be given specific powers to require relevant information from beneficial owners.  The beneficial owner will also be under an obligation to disclose that information.
  • Breach of the rules, by the company or the relevant beneficial owner, is likely to be a criminal offence.

Bearer Shares

Bearer shares have been identified as high risk, useful for criminals and supporting tax evasion and money laundering, and with this categorisation, it is no surprise that the Government intends to ban the creation of new bearer shares.  Existing bearer shares will need to be surrendered and converted to shares proper, notwithstanding anything in a company's Articles.  There will be a transition period following the legislation coming into force, currently nine months, to allow this to take place, after which the company will need to apply to court to cancel the bearer shares. In that case, the company will be required to pay the value of the bearer shares into court and that value will only be paid to the former bearer shareholder in exceptional circumstances.

Corporate Directors

English companies must currently have at least one natural (i.e. human) director although the other directors may be corporate entities.  The Government proposes to ban corporate directors in most cases, although there will be specific exemptions where corporate directors may be of value and where they represent a low risk.

The response paper can be found by clicking this link:

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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