On 16 July 2013, the Department for Business Innovation & Skills published the discussion paper "Transparency & Trust: Enhancing the transparency of UK company ownership and increasing trust in UK business". This paper follows the UK's commitment in the G8 summit in June to introduce new rules requiring companies to obtain and hold information on who owns and controls them. It is split into two parts: Part A (Enhancing the transparency of UK company ownership) which deals with issues regarding the identity of UK companies' beneficial owners and controlling persons and Part B (Increasing trust in UK business). This article discusses the proposals in Part A for enhancing the transparency of UK company ownership. Comments on the discussion paper are being sought until 16 September 2013.
Disclosure of beneficial owners
The main proposal is to establish a register of beneficial ownership setting out details of the beneficial owners of certain UK companies. Some of the main aspects which are being considered are set out below.
Who is a beneficial owner?
The Government proposes to define the concept of "beneficial owner" as an individual who owns or controls 25 per cent plus one share of the entity, through direct or indirect shareholdings and/or who exercises control over the management of the entity through other means. This corresponds to the current definition in the UK anti-money laundering framework (Regulation 6 of the Money Laundering Regulations 2007 No. 2157).
Which entities will be affected?
The proposal is that the obligation to establish the register will apply to companies incorporated in the UK. There will be an exemption for public companies listed on a regulated market (e.g. the main market of the London Stock Exchange). The Government has also stated that there is a strong case for the inclusion of limited liability partnerships within the scope of these rules.
What about beneficial owners which are not individuals?
There do not appear to be any specific rules regarding non-UK incorporated companies. Accordingly, if an overseas company is the beneficial owner, no disclosure other than the name of the overseas company would be required. The Government recognises the need for global action to enforce the disclosure requirements (otherwise foreign companies could be used as beneficial ownership blocker entities). For this reason, absent provisions penalising beneficial owners resident in jurisdictions without similar rules (which are not currently proposed), the information on beneficial ownership will be of limited use. In relation to trusts, the Government has proposed that the trustees should be disclosed as the beneficial owner of the company. There is also a proposal that the beneficiary of the trust should be disclosed in "certain circumstances".
Who will be able to view the register?
The Government favours publishing details of beneficial ownership at Companies House so that all members of the public can view the information. However, the consultation discusses other options such as only making the information available to law enforcement authorities and tax authorities. There are also proposals to extend the investigatory powers of law enforcement and tax authorities to allow them to obtain information on individuals interested in shares and to question company employees without a court order.
How will a company enforce the requirement to disclose beneficial ownership?
The Government proposes to extend the existing rules in part 22 of the Companies Act 2006 to enable companies to ascertain details of beneficial owners. Where the ultimate owner of the shares cannot be identified, the company will be able to apply to the court to subject the shares to restrictions (for example, the suspension of dividends). There is also a proposal for an obligation to require beneficial owners to disclose the fact that they are a beneficial owner of the company to the company.
When will the beneficial ownership register be introduced?
The intention is that beneficial ownership reform will be taken forward at the same time as the Money Laundering Directive, which is expected to be adopted in early 2014.
How often will it be updated?
The proposal is for the company to provide a full list of the names of beneficial owners on its first return after incorporation and subsequently on every third return thereafter. A company will also be required to inform Companies House of any changes to its members' shareholdings in years when a full list is not required.
Bearer shares
The Government also intends to abolish bearer shares. It cites the Global Forum on Transparency and Exchange of Information for tax purposes and the Financial Action Task Force as having identified bearer shares as hot spots in facilitating tax evasion and money laundering. The proposal is for the issue of new bearer shares to be prohibited. Existing bearer shares would be phased out over a certain period of time to allow the owners to convert them into ordinary registered shares, held electronically or otherwise.
Nominee directors
In a similar vein, the Government is concerned that nominee directors can be used to hide the individuals who are actually controlling a company. However, it acknowledges that in certain circumstances there are legitimate uses for nominee directors (for example, nominee directors appointed by a parent company on the board of its subsidiary company). The proposals being considered include some or all of the following:
- communicating more widely that any individual appointed to the office of director and registered as such at Companies House is subject to directors' duties;
- requiring nominee directors who have divested themselves of the power to direct the company to disclose this and provide details of the beneficial owner on whose behalf they have been appointed to Companies House;
- creating a specific offence for any director to divest themselves of the power to direct a company; and
- prohibition of the use of corporate directors.
Please click on the links below for the other articles in the August 2013 tax newsletter.
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