Plan for registry of firms’ owners in offing, says William McIntosh
THE answer to the question: “Who really owns UK companies?” is not as straightforward as may first appear. While the “legal” owner of shares will be listed on a company’s register of members, the underlying “real” or “beneficial” owner of those shares may be difficult to identify. In most cases, there is nothing untoward about this (for example, pension funds are often the beneficial owners of shares in blue chip companies but they hold those shares through a nominee company which appears as the legal owner on the company’s register of members). However, there is no doubt that some unscrupulous individuals hide behind company structures for the purpose of criminal activities such as corruption, money laundering and tax evasion.
The UK government has announced plans to create a new central registry of “beneficial owners” of UK companies. The registry will contain information on individuals with an interest in more than 25 per cent of a company’s shares or voting rights or who otherwise exercise control over how the company is run. Companies will have to obtain this information from their shareholders and provide it to the Registrar of Companies, who will then maintain the central registry. The information in the central registry will be publicly available.
The government proposes to apply the rules to companies incorporated in the UK and is considering whether to cover other legal entities such as limited liability partnerships. It estimates that around 2.5 million entities would be affected by the new rules, 2.3m of which would be small companies. Public companies listed on the Main Market of the London Stock Exchange are likely to be exempt because they are already subject to even more stringent rules on disclosure of beneficial ownership. Overseas companies operating in the UK would also be exempt. Instead, the government will press for co-ordinated action at an international level.
There would be powers for companies to enable them to obtain the required information. There is already a regime that enables public companies to investigate beneficial ownership of their shares. However, the public company has a choice whether to exercise those powers.
The government thinks that the current regime does not go far enough so it plans to impose a legal requirement on companies to identify their beneficial owners. It proposes to require beneficial owners to disclose this fact to the company. This would be modelled on the disclosure regime that currently applies to any individual with an interest in 3 per cent or more of a company listed on the Main Market of the London Stock Exchange. Beneficial owners may also be required to disclose, within a certain timeframe, when they become, or cease to be, a beneficial owner of the company.
There’s nothing concrete yet on how companies will provide this information to Companies House. However, there are big hints that the Government will borrow from the current annual reporting regime which requires companies to provide information on an annual basis about their register of members. This would mean that companies would be required to hold details of the names and addresses of their beneficial owners as well as details of the shares in which they had an interest. They would be required to provide the names of their beneficial owners to Companies House on incorporation and periodically thereafter. Where the legal and beneficial owners of shares in a company are one and the same person, it will of course be straightforward for a company to identify its beneficial owners.
Companies House would make publicly accessible the names of the beneficial owners and details of their interests in the company. There would be limited exemptions from public disclosure, for example where necessary to protect individuals whose safety might be at risk. The government is also working out how to ensure that the beneficial ownership information held by the registry is up to date given that shares can change hands at any time.
Everything is still at the proposal stage and a formal response to the original discussion paper is expected in early 2014. Where possible, the government wants to introduce reform before the end of this parliament (in 2015). Watch this space.
• William McIntosh is a partner in the corporate team at Brodies LLP