The Department for Business Innovation & Skills has published a discussion paper on its options to ‘Enhance the transparency of Company ownership and increase trust in UK Business.’
The policy paper has been published subsequent to the UK Government’s commitment at the G8 summit in June 2013 to institute tougher rules on tax evasion, money laundering and the concealment of stolen assets.
What are the Main Proposals?
One of the predominant proposals outlined to achieve this end is to implement a central registry of company beneficial owner information - maintained by Companies House.
Beneficial owners are shareholders with ownership of over 25% of the company’s voting rights or those who ultimately own or control the company, or have effective control of the company’s management through some other means.
Given that there is currently no requirement for companies to hold information on their beneficial owners, individual shareholders can conceal the fact that they own or control the company, thereby enabling them potentially to use that company to undertake illegal activities.
What Are the Implications?
The implications of such a register for businesses would be to ensure that investors, markets and other companies better understand precisely with whom they are conducting business, due to the disclosure of the effective ownership or control of those companies.
However there are questions over whether such registry requirements would extend to other legal entities such as Limited Liability Partnership (LLPs), along with concerns over whether this information would be publicly available or accessible only to law enforcement and tax authorities.
A further proposal to augment transparency is the prohibition on the creation of new bearer shares – which grant the physical holders of these instruments ownership of equity, without the need to register the holder’s information.
Though bearer shares can be used legitimately, the opacity they confer can potentially facilitate tax evasion or money laundering. Such measures would be a useful tool in promoting the G8 Principles on preventing the misuse of companies.
Misuse of nominee directors – individuals placed on the register of directors despite following directions from the real controller of the company (such as the beneficial owner) – also obstructs transparency.
A proposal to require a director, who has handed over their legal responsibility for the management of a company to another, to disclose this fact to Companies House, could disincentivise the use of nominee directors to conceal corporate control. Alternatively, an amendment to the Companies Act 2006 making it an offence for company directors to divest themselves of their duties as directors could also help better disclose the true controller(s) of a company.
Overall, The Business Secretary Vince Cable hopes to reassure “businesses, investors and employees that companies are acting fairly” and this discussion paper is the first stage in that process.