Government Proposals to aid Transparency and Improve Trust in UK Companies

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In July 2013 the Department of Business, Innovation and Skills (BIS) published “Transparency and Trust: Enhancing the Transparency of UK Company Ownership and Increasing Trust in UK Business’, which concentrated on identifying who really owns and controls UK companies.

The proposals in the paper aim to:

  • Prevent illegal activities such as money laundering and tax evasion;
  • Allow companies to be held to account by Investors and others; and
  • Provide confidence to investors, businesses, employees and consumers that companies are acting fairly and those that break the rules will be punished.

The paper outlines that trust is a key aspect of business transactions and business success and the growth of a business and is dependant upon confidence by investors, employees and other businesses.  In order to increase trust BIS have pinpointed transparency as an essential element of governance and allowing companies to be held accountable.  By implementing proposals that hold companies to account the aim is to create an environment whereby investors and honest businessmen are prepared to take the action needed to promote further growth and employment.

The Government in the last few days have issued a response to the July 2013 paper and in that response they have adopted some of the proposals put forward by the BIS.

One of the main proposals is to create a central register of company beneficial ownership information.  This means that information on individuals who hold 25% or more of company shares or voting rights, or who otherwise exercises control over the management of the company, need to be obtained and provided to the central registry.  The Government have accepted that further clarity is required in relation to the term “control” and this is something that will be discussed in Parliament.  Under this proposal, where there is beneficial control through a Trust, the Trustees or an individual in control of the Trust they will be the beneficial owner.  The proposals also apply to companies limited by guarantee i.e. a company whereby the members are guarantors rather than shareholders and also to Limited Liability Partnerships (LLPs).  The information required from companies will be the full name of the beneficial owner, date of birth, nationality, residential and service addresses, date they acquired the beneficial interest, details of the interest and how the interest is held.  The information must be made available for public inspection at the companies head office and will also be available on Companies House (with the exception of residential addresses).

Further steps taken to improve the transparency of company ownership and control includes a ban on the creation of new bearer shares i.e. a share owned by whoever holds the physical certificate, because a bearer share is not registered to any authority, transferring the ownership only involves delivering the physical document.  The proposals will also place a compulsory ban on existing bearer shares, largely due to the fact that bearer shares lack regulation and control as their ownership is never recorded.  Companies will no longer be able to issue bearer shares, and existing holders of bearer shares will need to exchange these for registered shares.

The proposals will also place a ban on corporate directors i.e. where a company is a director.  There will be specific exemptions for corporate directors that are lower risk and there will also be a one year transitional period to implement this smoothly. This proposal is still subject to review and will be discussed with businesses prior to implementation.

In order to improve accountability, the proposals aim to increase the awareness of a director’s duties, and will make sure that directors are aware of their statutory duties from the start.  The paper by BIS in July 2013 proposed a separate register of directors, but the Government are not proposing this and are instead going to look to contacting directors to ensure they understand their duties and the legal consequences when they start.

Finally, with the aim to improve trust in the UK system for disqualifying company directors, under the proposals there will be changes to the Directors Disqualification Regime which will replace Schedule 1 of the Company Directors Disqualification Act 1986 with a broader provision setting out the factors to be considered by the Court or Insolvency Service when determining if a disqualification is required and if so, for how long,  which will include the materiality of the conduct, culpability, the track record and the impact of the behaviour.  The proposals will also allow for overseas conduct to be used as a basis for disqualification and also allow for an increase in the time limit within which proceedings may be brought following insolvency.

Many of the changes will require further discussion and legislation to be passed but there has been an indication that these will be pushed through Parliament as soon as time allows, it is therefore a good time for existing companies or those looking to set up a new business in the future to consider the proposals put forward and how these might effect them.

If you require any help with any of the above proposals and how these may affect your business then do not hesitate to contact our Specialists in Business Law at Forbes Solicitors on 0800 037 4628.

Pauline Rigby

About Pauline Rigby

Pauline Rigby is Head of the Corporate and Restructuring team at Forbes Solicitors. Pauline’s blogs cover a wide range of corporate issues, specifically areas including company formation, banking, joint ventures and shareholder matters, contractual matters and equity fundraising or investing.
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