My colleague, Ellis Walls, recently reported on the expected changes to director disqualification law. In the same response paper, the government proposes to introduce so-called “registers of beneficial interests”. Mr Cable’s introduction to the paper notes that these registers are the proposed remedy to many commercial ills, including; a lack of trust in the system, incomplete transactions, averting money laundering, tax evasion and terrorist financing.
Under the new rules to be introduced, each company will be obliged to maintain a register noting the beneficial ownership of shareholdings which are registered in the name of a nominee. This information must also be provided to a central registry.
The government has reached the following conclusions on various aspects of the registers:
- Information must be gathered in relation to those individuals who ultimately own or control more than 25% of a company’s shares or voting rights, or otherwise exercise control over a company or its management;
- If a beneficial interest is held through a trust, the trustees or individuals controlling the trust should be recorded as the beneficial owner. It is not yet clear in what circumstances the beneficiary would be recorded as the controller of the trust.
- Both companies and limit liability partnerships will be required to gather the required information and provide it to the central registry.
- There will be limited exemptions from the requirement to prepare and disclose a register for those companies that are subject to equivalent disclosure requirements as a result of having securities listed on a regulated market.
- Obligations are placed on the company to make relevant enquiries concerning significant shareholdings. Beneficial owners will also be subject to duties to disclose their interests to the company.
- The company’s register of beneficial interests will include the full name, date of birth, nationality, state of residence, residential address of the beneficial owner and the date(s) on which the beneficial interest was acquired.
- This register must be provided to Companies House and updated at least once a year. Some of this information will not be available on the public register in order to reduce the instances of fraud. The government has yet to make a decision on which of these items of protected information may be made available to UK and overseas authorities.
Given the primary aim of the proposed register being to improve transparency and accountability, the government may be disappointed in the outcome. Some respondents to the consultation paper noted that there were simple means to evade the reporting requirement, which stems from the government’s introduction of the 25% shareholding threshold.
In light of these obligations, (and the criminal law consequences suggested for breach) company directors will require to be extra vigilant concerning the reasons given for shares being held in a particular way. Directors should consider whether the reasons provided make the best commercial sense, and if not, why is the most logical structure not being used?
We await the final legislation and decisions on the outstanding points of the consultation process. It is also to be hoped that the government takes appropriate action to limit the administrative burden on companies which may result from this proposed change.Kelly Craig
Solicitor – Business Services