EXCLUSIVE GUEST ARTICLE: Maitland On Beneficial Ownership - UK Drops "Cloak Of Secrecy"

Nitzan Olsha

Maitland

17 February 2014

Before the summer in 2013, the UK government announced proposals that would require companies to obtain and hold information about their ownership and control; and create a central registry of beneficial company ownership, to be maintained by Companies House. Nitzan Olsha, partner in Maitland’s London office, gives an update on developments.

In late October 2013, in a speech to the Open Government Partnership Summit in London, Prime Minister Cameron insisted the beneficial ownership register must be open to the public as well as officials.
Campaigners for transparency and good governance have been determined to break down the wall of secrecy that lies at the heart of much tax evasion and the UK will be the first country to commit to an obligatory public register. These campaigners welcomed the plan for a central register of company beneficial ownership.

On the other hand the British Chambers of Commerce warned that the register could add to the burden of red tape for some companies. BCC Director of Policy Adam Marshall said: "Most British businesses already have transparent ownership structures, and put clarity and trust at the heart of their corporate governance arrangements. Many will be concerned that the introduction of a universal register of beneficial ownership could create unintended consequences for law-abiding businesses, such as increased regulatory and reporting burdens. Ministers must work with business to address these concerns over the coming weeks, and ensure the UK doesn't go it alone when it comes to good corporate governance.”

Under current proposals there would be a new central registry of the beneficial owners of all UK incorporated companies. For these purposes, a beneficial owner would be defined as an individual with an interest in over 25 per cent of the shares or voting rights of a company . The holdings of individuals acting in concert would be aggregated. The definition would also include any individual who otherwise exercises control over the way the company is run, regardless of whether they hold shares in the company.

A company would be required to hold the name and address of any beneficial owner and details of the shares in which they are interested. These details would be provided to Companies House on incorporation and periodically thereafter. The current regime for legal ownership notifications to Companies House could be used as a model for the notification of this beneficial ownership information. Alternatively, companies could be required to update the information as it changes.

Government’s provisional view is that companies traded on the Main Market of the London Stock Exchange would be exempt from the requirement to file information at the registry, given the stringent disclosure requirements applicable to them. The government is also considering whether beneficial ownership information for other types of legal entity should be held in a registry and believes that there is a strong case to include limited liability partnerships in such a regime.

Section 1112 of the Companies Act 2006 would apply in respect of information provided by a company to Companies House. It would therefore be an offence to knowingly or recklessly provide false or misleading information.

Government intends to extend Part 22 of CA 2006 to all companies so that they have the ability to identify their beneficial owners. To ensure that this information is obtained, there will be a requirement on companies to identify any beneficial owner or persons acting together who hold over 25 per cent of the company's shares or a block giving equivalent control of the company, whether using the proposed extended statutory powers or otherwise. If the company is unable to identify a beneficial owner it could apply to the courts and the company may also need to notify Companies House in these circumstances.

Government is also proposing to require beneficial owners to notify the company that they are a beneficial owner. The disclosure regime set out in Chapter 5 of the Disclosure & Transparency Rules of the Financial Conduct Authority could be used as a basis for this proposal. So that individuals can calculate their percentage interest in a company, the company would need to disclose publicly the total number of shares and voting rights at least annually.

If interests are held by an express trust, the government suggests that the trustee should be disclosed as the beneficial owner and is consulting on whether the beneficiary should also be disclosed.

There will be limited exemptions from public disclosure, such as where it is necessary to protect individuals whose safety might be put at risk.

The government’s formal response to its discussion paper is expected in early 2014.