We recently highlighted the government’s proposals to create a central register of the beneficial owners of companies. In this post, we consider the impact that this could have on companies and investors if the proposals are implemented.
Who are the beneficial owners?
The beneficial owners of a company are those persons who are ultimately entitled to the dividend and voting rights attached to shares that are registered in the name of a nominee. The government proposes that the central register should contain the details of anyone who owns or controls more than 25% of the company (either alone or together with their connected persons) and/or who otherwise exercises control over the management of the company. This mirrors the current definition in the UK anti-money laundering legislation.
The register, which was put forward in the government’s ‘Transparency and Trust‘ discussion paper, is intended to make it clearer exactly who owns and controls companies and, as a result, to help prevent tax evasion, money laundering and terrorist financing. The register would be maintained by Companies House, but companies would be required to provide the relevant information. The government is proposing to make the register available to the public but to exclude companies on the Main Market of the London Stock Exchange from the regime (on the basis that they are already subject to a stricter disclosure regime about interests in their shares).
To be able to update and maintain the register, a company is going to be reliant on receiving the required information from the beneficial owner. It is proposed that if the information is not provided by the beneficial owner in response to the company’s request, then the company can apply to court, but this would be a costly task in terms of both time and money for a company.
There are also questions around when such information would need to be updated by companies. For many companies, the proposal could impose a substantial administrative burden on them if the register had to be updated each time a beneficial owner changed, rather than once a year like the annual return.
Concerns have been raised that a public register could deter institutions and individuals from investing in UK incorporated private companies. For many investors, it is vital that their affairs and identities are kept confidential. If this plan goes ahead, an investor who wishes to remain anonymous will only have the option of investing in UK public listed companies, leaving smaller private companies with a funding gap.
In addition, the proposal clearly goes against the government’s plan to cut red tape, by imposing a new administrative obligation on companies, rather than making life simpler.
The register, which is supported by the CBI, would not be such a concern to investors if it was to be kept private and not publicly available. One compromise may be for companies to keep their own private registers, but would the benefit of knowing who a company’s beneficial owners are outweigh the burden of having to maintain the register? And is it worth creating a central register of beneficial owners if that register doesn‘t apply to ALL companies and contain details of ALL of the beneficial owners? Other legal entities like limited liability partnerships will be following these developments with interest, as The Department for Business, Innovation and Skills (BIS) is also considering whether these disclosure obligations should also apply to them. BIS’ response to its consultation is expected at the end of the year – watch this space for the outcome.