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“Transparency” and “Trust” are the new names of the game according to the Department for Business Innovation and Skills (“BIS”). Its July 2013 consultation paper advocated the enhancement of transparency of UK company ownership, and the increase in trust in UK business. These concepts have now been embodied in the April 2014 proposals which also include a review and overhaul of provisions relating to directors and their disqualification as well as provisions on bearer shares and beneficial shareholders.
The current company ownership obligations require a company to register the identity of the legal owners of its shares. BIS considers that in the strive for transparency of ownership and control, companies should also obtain and hold a register of beneficial ownership information, except where it is exempt as already having to comply with the Disclosure and Transparency Rules or similar listing requirements. As a result a company would need to obtain and disclose to Companies House information on individuals who ultimately own or control more than 25% of its shares or voting rights, or who otherwise exercise control over the company or its management. The obligations can still be thwarted by a trust structure where a beneficial interest is held through a trust, as in general only the trustees would need to be registered.
Although the obligation falls on the company to collect and register the information, there is also an obligation on the beneficial owner to inform the company of any changes, although in practice it is questionable how effective this will be. Like public companies, private companies will be given the power to require shareholders to disclose information on interests in its shares rather like the existing Part 22 Companies Act 2006 provisions.
The idea is that this information should be provided on incorporation and then updated at least annually either by notification of changes or by ticking the box on the Annual Return to confirm that the details have been checked and there are no changes to report.Companies will need to think about how they will in practice obtain and check the beneficial ownership details.
Private companies will be able to opt out of the existing obligations to keep Registers of Members, Directors, Secretaries, Directors Interests and Directors residential addresses, and rely instead on the information filed with Companies House. This may be a welcome development for smaller companies in reducing their corporate administration by not keeping their own Registers.
A further provision relating to shares is the proposal to abolish existing bearer shares and prohibit any new ones being issued, providing a period during which any bearer shareholders can surrender their existing bearer share warrants to be converted into registered shares. After this transition period, an application for conversion would need to be made to the Court.
In a drive to improve director’s knowledge of their duties and responsibilities, the Registrar of Companies will contact all newly appointed directors to advise them of their legal role, responsibilities and obligations, but there is no proposal (as yet) to introduce compulsory director training or qualifications. This notification by Companies House will also confirm the appointment to the director so if he/she did not in fact consent to act, he/she can apply for the appointment to be removed.
Other areas under consideration include explicitly applying director’s statutory duties to shadow directors and those who control a single director as a new means of increasing accountability of those who control directors.
The law relating to the disqualification of directors is also being considered for reform, with the introduction of a broader list of provisions to be considered, including the materiality of a director’s conduct, culpability and previous track record and the impact of the behaviour. This will also include overseas behaviour and would allow the disqualification of a UK director when convicted of a criminal offence in relation to an overseas company
The above provisions will all need primary legislation to implement, but there is clearly a desire within Government to increase corporate transparency in the belief that this will increase public and third party trust in UK businesses, so watch this space for news of changes.
© Kate Anthony Wilkinson
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