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Does Company Ownership Need Greater Transparency?

Friday, 30 May 2014

Catchy political ideas do not always translate into roaring success stories in practice. How many times has a new political sound-bite fathomed up in a poll-obsessed think-tank sailed across our headlines only to be broken up as the details are dashed on the rocks of reality?

That does not appear to have put Business Secretary, Vince Cable off pursuing a plan for a new public register of company ownership in order to keep tabs on the beneficial owners of UK companies. The main plank of the proposal is for a registry holding information on individuals with an interest in more than 25% of shares or voting rights in a company, or who otherwise control the way a company is run.

While the politics might offer easy popularity for politicians, the practical effects may be less appealing.

Might a public register of company ownership be a good thing?

There are certainly sound and understandable reasons why the principle of transparency of company ownership has its merits. At a time when trust in institutions is at an all time low and the economy has been battered by business practices that range from the amoral to the outright corrupt, knowing who ultimately owns (and therefore controls) an organisation might bring a degree of comfort to the general public.

Furthermore, it should disincentivise those who seek to engage in outright fraud or tax evasion safe in the knowledge that there is a cloak of secrecy protecting their identity. This is the “darker side of capitalism” that Vince Cable would like to see consumers, investors and ultimately taxpayers protected from. But is there a downside?

Are there any reasons why company owners should have anonymity?

It is not a uniquely British trait that people are often reserved about the extent of their wealth. In many cases, the wealthier the person the more reserved they are. Admittedly the popularity of expensive sports cars and other forms of conspicuous consumption might not altogether tally with this idea but even people with a taste for life’s luxuries would probably stop at spelling out the precise details of their business assets. This does not mean that they are corrupt or dishonest.

Secrecy is not just a question of personal sensibilities either; security issues may be of particular relevance to children who are trust beneficiaries for example or wealthy foreigners who have set up businesses in the UK to avoid difficulties in more hostile countries. Such individuals do not have to be engaged in illicit activities to have a need for privacy.

With these issues in mind, there is a clear risk that unilaterally exposing the names, date of birth and nationality of the beneficial owners of businesses will create a jurisdictional disadvantage for the UK. Why set up a company here when Delaware in the US will keep all your information secret? Meanwhile, creating a system that works effectively without simply generating fees for professionals to get round the proposals (i.e. simply imposing further red tape and cost burdens on businesses), is also likely to be a challenge.

If you are concerned about how this or other legislative proposals might affect your business, contact Peter Gourri today by email or telephone 0207 611 4848.

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