In a recent blog post we considered the impact that a central register of the beneficial owners of companies could have on companies and investors. In this post we provide an update on the Government’s latest announcement on these proposals.
Register to be made public
The Government has decided that the details of people who beneficially own more than 25% of a company, or who otherwise control the way it is run, will be accessible to the public. The proposals would catch a number of individuals who together hold more than 25% of the shares and who have agreed to vote in the same way. There will be limited exceptions to this requirement, where it is essential to protect the identity of individuals whose safety might be put at risk if their details were made public. This is a small blessing – just remember the terror campaign against David Hall and Partners!
Why is the Government doing this?
The Government believes that by promoting transparency, investors, employees and the wider public will have trust and confidence in companies and the people that are running them. This in turn creates a stronger economy and tackles tax evasion, money laundering and other crimes. David Cameron has said that the current ‘cloak of secrecy’ is holding back tax cuts for business as a whole, because ‘to keep corporate taxes low, you’ve got to keep corporate taxes coming in’.
Whilst the Government appreciates that the vast majority of companies are run properly and make a large contribution to the economy and society, the behaviour of the few companies that are deliberately set up to obstruct transparency means that details of the beneficial owners of all private companies will be made publicly available.
Early next year, the Department for Business, Innovation and Skills will publish further details on how this information will be held by companies and Companies House and how it should be updated.
For those investors who are keen to keep their identities private, this means that they will either have to invest in publicly listed companies (because the central register of beneficial owners will not apply to these companies) or they will have to look at their investment decisions carefully and only commit to take up less than 25% of the shares in a private company. They will also need to monitor their investments to ensure that their shareholding does not go above 25%, for example following a buy back of shares. Private companies looking for investment may therefore need to look for a group of financial backers to fund their development, rather than one large benefactor.
The approach of the Government has been applauded by the Institute of Directors, anti-corruption campaigners Global Witness and World Bank group vice-president Sanjay Pradhan, who has also indicated that this information will feed into the Open Company Data Index that it sponsors.
Somehow, we have a feeling that private investors may have a slightly different view.
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