Transparency & Trust

16th June 2014

transparencyAt the G8 summit hosted by the UK in June 2013, the UK Government announced proposals to increase transparency in the ownership and control of companies and followed this up with a discussion paper issued in July 2013.  The Department for Business, Innovation and Skills has now published the government’s response to the discussion paper and consultation on the proposed “Transparency & Trust” regime.

The key proposal is that a central public register of “beneficial owners” of companies will be created. This will be backed up by continuing obligations on companies to identify and record their beneficial owners and on beneficial owners to notify companies of their interest in their shares.

As a starting point, the government will use the concept of beneficial owner used in the anti-money laundering context. This is an individual who ultimately owns or controls more than 25% of a company’s shares or voting rights or who otherwise exercises control over the company or its management. The government intends to develop and refine the definition over time including as to what is meant by “otherwise exercises control” in this context. It also seems likely that, to “minimise opportunities for individuals and companies to ‘get round’ the rules”, interests of associates will be aggregated so as to include, for example, interests held jointly with another individual or arising as a result of various shareholdings in the company, such that the individual and associates can control more than 25% of the company’s shares or voting rights.  Where beneficial ownership is held through a trust then the trustee(s) or any individual(s) who control the activities of the trust will be the beneficial owner.  The government expects that in most cases this will be the trustee (and not the beneficiary, settlor or protector of the trust).

Under the regime, UK companies and limited liability partnerships must identify and create a register of their beneficial owners.  Traded companies that are subject to the disclosure of interest requirements under the FCA’s Disclosure and Transparency Rules will be exempt. Private companies will be given statutory powers similar to those now available to public companies to identify persons who are interested in their shares to allow them to identify their beneficial owners.

In parallel, beneficial owners will be required to disclose their interest in the company to the company.

The company’s register of beneficial owners will include specified information on the beneficial owner and, save for residential addresses, will be open to public inspection. Companies will be required to update the information held in their register of beneficial owners if they knew or might reasonably be expected to have known that a change to their beneficial ownership had occurred and beneficial owners must notify the company of any changes to the information recorded in the register.

All of the beneficial owner information held by the company must be provided by the company to Companies House.  It will be publicly accessible at Companies House with the exception of residential addresses and full dates of birth (where only the month and year of the date of the birth will be publicly accessible).  A process will be available to allow applications to the Registrar of Companies to protect beneficial owners’ full information from public disclosure in “exceptional circumstances”.

The new regime will be backed up by criminal sanctions for breaches by beneficial owners and company officers.

Other proposals under the “Transparency & Trust” regime include banning corporate directors (subject to certain exceptions such as for group structures including large listed or private companies) and abolishing bearer shares.

There is as yet no timetable for implementation of the proposals. As the government’s response notes, this is a significant and complex reform that will require both primary and secondary legislation and the government will continue to refine the framework outlined in the response and develop the detail.  Legislation will be introduced in Parliament as soon as the Parliamentary timetable allows. Until draft legislation is published it will be difficult to assess to what extent the government’s objectives can be achieved and how significant the additional administrative and compliance burden on companies will be.

This bulletin should not be taken as definitive legal advice. Please contact Nick Foss-Pedersen on 020 7955 0880 or for further advice.

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