Changes to Corporate Transparency rules in the UK
In June 2013 the leaders of the G8 committed to reforms in corporate transparency, seeking to encourage investment, prevent tax evasion and hinder money-launderers and terrorists. The statesmen were concerned that complex corporate structures were making it easy for wrong-doers to avoid accountability for their actions, disappearing with untraceable funds beyond the reach of law enforcement and tax authorities.
In the dying days of the 2015 parliamentary session, the government moved towards this aim in the form of the Small Business, Enterprise and Employment Act 2015. This Act covers an eccentric collection of topics, dealing with everything from child-minders, to the Pubs Code, to concessionary coal for old coal miners but it also makes some significant amendments to company law.
The most eye-catching change is the new requirement for those companies which are not already subject to disclosure requirements (i.e. unlisted companies) to investigate who their owners are and maintain a register of 'Persons with Significant Control' (PSC) – i.e. the true parties capable of controlling a company's activities. Companies will be required to investigate and obtain information as to whether any person is registrable as a PSC, including issuing notices to any person who the company reasonably considers might know.
For many companies, this will not be a significant problem – the legal owners of the shares and the controlling parties will be the same – however, a small but significant minority of companies are in fact controlled by individuals who are not registered directors or shareholders, exercising this control through nominees and other corporate vehicles.
The new register will contain the details of any person who:
1. holds, directly or indirectly, more than 25% of a company's shares or voting rights;
2. can appoint or remove the majority of the board of directors; or
3. has the right to exercise, or actually exercises, significant influence or control over the company.
The definitions are deliberately wide, and will catch nominee shareholder arrangements, joint shareholdings and arrangements between shareholders. It also allows PSCs to be traced through chains of companies.
Individual PSCs will have to provide broadly the same personal information that directors do, including their full name, date of birth, residential and service addresses, nationality and a description of the nature of their control.
The PSC register will be public and must either be kept on the central register at Companies House or be available for inspection at the company's registered office and delivered annually to Companies House with the new confirmatory statement. This information will be available online from Companies House and may eventually be searchable by name, in the same way as director information.
If transparency is a potential issue careful planning and analysis of both existing and proposed structures will be required to determine what information each entity is required to disclose and whether alternative arrangements, such as the use of offshore entities or trusts, would be necessary.
Fortunately, there is still time to plan if this is a potential concern. There is no definitive timetable as yet, as the Act will be brought into force gradually through secondary legislation, but the intention is for companies to begin to keep their PSC registers in January 2016, with the obligation to begin filing at Companies House from April 2016. As there will be criminal liability for directors and companies that fail to comply, persons affected should consider the consequences of these reforms and obtain legal advice.