UK: Crackdown on Hidden Company Owners Advances
On April 21, 2014, measures to improve the transparency of who really owns and controls UK companies were announced by Business Secretary Vince Cable.
Ministers have confirmed that the government is to proceed with an open, publicly available beneficial ownership register – a G8 commitment announced by the Prime Minister in 2013 (see June and November 2013 HSP updates). This shows that the UK is leading the world in taking forward measures to enhance corporate transparency.
The scrapping of physical ‘bearer shares’ - shares issued by a company which belong to whoever owns it - is also included in the plans. While the government is to also look at limiting the use of companies being directors of other companies and better educating directors on their duties before they start.
This will help tackle tax evasion, money laundering and the financing of terrorism, and improve the investment climate in the UK. In March of this year, the European Parliament voted resoundingly in favor of an anti-money laundering Directive which would see the setup of public, central, interconnected registries listing information on the ultimate beneficial ownership of companies, foundations, holdings and trusts.
It is hoped greater transparency will mean honest entrepreneurs and investors can do business more securely in the UK and not be disadvantaged by those who don’t play by the rules. This follows the Business Secretary’s announcement earlier this week (19 April 2014) which seeks to beef up the director disqualification rules.
Business Secretary Vince Cable said, “The UK is already one of the best places in the world to start, grow and run a business. However, for consumers, investors and the wider public to really trust a company they need to know who is really in charge. This is why I’m making sure we take tough action tackling the darker side of capitalism and the smoke and mirrors which have existed for too long. No longer will UK companies be able to use complex structures and trails of paperwork to hide information and keep the public in the dark.”
The main elements of the company ownership reforms include:
- a central open registry of information on companies’ ultimate controllers and owners maintained by Companies House. The registry would hold 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. Companies will need to supply these details to Companies House when starting up and update them at least once every 12 months. This will include details such as the name, date of birth and nationality
- the abolition of bearer shares, given the potential for misuse. Currently, these are shares which belong to whoever owns the physical share warrant. The owner’s identity doesn’t need to be in the company’s register of members, and they can be transferred untraceably. Companies will no longer be able to issue these and existing bearer shareholders will be required to exchange these warrants for registered shares
- limiting the use of corporate directors – a situation where a company is director. An exemption will apply for lower risk examples and this is subject to further discussion with business
- making sure that front directors, who often hold multiple directorships, are aware of their statutory duties when they start. The government will not press ahead with a separate register as originally proposed, but will instead look to contact directors to make sure they have understood their duties and the legal ramifications when they start. This will help increase the accountability of those who control a front director.
Following on from the response to the Companies House filing consultation, the government has also confirmed a number of red tape cutting measures for business. These will reduce the time spent form filling, the duplication of paperwork and improve the accuracy of the public register. These include:
- a replacement to the annual return that gives companies greater flexibility in when they file a return with Companies House. No longer having to keep their own company registers on directors and shareholders if all the information is provided and updated at Companies House. This provision would extend to the beneficial ownership register
- increasing the use of electronic correspondence between Companies House and companies
- simplifying filing requirements where directors are appointed and providing a new means of resolving disputes about directors’ appointments.
All the measures included here will require both primary and secondary legislation and will be subject to the Parliamentary timetable.
Definitions used in this update:
- beneficial ownership: any individual with an interest in more than 25% of the company’s shares or voting rights; or who otherwise exercises control over the way the company is run. The proposals would include information on limited liability partnerships (LLPs) and companies owned by trusts
- bearer shares: shares issued by the company which belong to whoever owns the physical share warrant. The owner’s identity need not be entered into the company’s register of members, and they can be transferred untraceably. Analysis suggests that 1,233 companies have issued these – 0.04% of all companies
- front directors: directors appointed and registered at Companies House on behalf of someone else. ‘Serial nominees’ may rent their names to several hundred companies in return for payment and play no part in the management of the company. We don’t know how many companies have opaque director arrangements, but in the current system 6,150 people are the directors of more than 20 companies. This could be legitimate, but it could also mean that between 154,000 and 273,000 companies have directors that might be neglecting management and being controlled by someone else
- corporate directors: where a company is appointed and registered as a director. This can be used to create very complex corporate structures. There are around 67,000 corporate directors registered at Companies House.