Transparency of UK company ownership: new duties to disclose controlling interests

This article was produced by Olswang LLP, which joined with CMS on 1 May 2017.

Many UK companies, and individuals with a controlling interest in them, will be subject to increased disclosure obligations under the proposed new Small Business, Enterprise and Employment Bill.

New duties for companies

If the Bill is enacted, UK companies will be obliged to maintain a publically accessible register (PSC Register) of those individuals who, either alone or jointly with others, have "significant control" over the company - "registrable individuals".

As well as being held on the PSC Register, this information will need to be confirmed to Companies House at least every 12 months.

In order to compile the PSC Register, companies will be under a duty to investigate the identity of any person they know to be (or who they have reasonable cause to believe is) a registrable individual, to obtain the required details of that individual and keep that information up-to-date.

Companies will also have the power to make enquiries of any other person where the company knows (or has reasonable cause to believe) that such person either knows the identity of a registrable individual or knows the identity of someone else who knows that information.

New duties for beneficial owners of shares

Individuals who know, or ought reasonably to know, that they have significant control over a UK company, will have an obligation to inform the company of their interest (and any changes to it) where the company has not already requested that information. In addition, failure to respond to a company's enquiries will give the company the ability (without a court order) to disenfranchise and impose other restrictions on the relevant shares. Ultimately, where the company is unable to identify the beneficial owners of the shares, it will be able to apply to court for an order to sell the affected shares.

Exemptions

• Companies under an obligation to report under DTR 5 e.g. LSE Main Market and AIM companies, do not need to maintain a PSC Register. Some other companies (for example, UK companies listed overseas which are subject to a similar disclosure regime to the DTRs) may also be excluded by regulations.
• PSC Registers will not need to be repeated at every level in a corporate chain. Where a company or other legal entity (as opposed to an individual) has significant control over a company, then provided that the legal entity is itself under a disclosure obligation (e.g. to maintain a PSC Register or under DTR 5) it will be sufficient simply to identify that "relevant legal entity" in the PSC Register of the company concerned. However, the Bill contains anti-avoidance provisions so that inserting an entity which is outside the scope of the new rules in the chain of ownership will not prevent the UK company having to look past those entities and disclose the individuals with ultimate control.
• Where there is a risk of violence or intimidation, regulations are expected to exempt companies from the requirement to allow public access to the PSC Register (see What is still outstanding? below).

What is still outstanding?

There is still a lot of detail to be finalised and the Bill provides for regulations to be made in various areas to fill in these gaps. In particular, we are waiting for:

• clarification as to whether LLPs will be required to maintain a PSC Register - although the Government indicated earlier that LLPs and possibly Scottish Limited Partnerships (as they are separate legal entities) would be included in the rules, they are not mentioned in the new Bill;
• guidance on how "significant influence or control" will be interpreted;
• regulations giving details of how each registrable individual's interest is to be recorded in the PSC Register, possible exemptions from the requirement to keep a PSC register and exemptions from the obligation to make the register (or certain information on it) publically available.

Implications

• Individuals with significant control over UK companies who are legitimately concerned about confidentiality, should be aware that their details and arrangements will usually be made public.
• New internal processes will be required to enable companies to identify registrable individuals and relevant legal entities and maintain the PSC Register. Company secretaries and general counsel will need to adopt procedures for gathering and maintaining the information for the PSC Register.
• The rules currently only apply to UK companies, not to foreign companies operating in the UK, and this "loophole" has led to criticism from some commentators. However, the Government has pledged to lobby other jurisdictions to implement similar rules (to avoid the UK being at a competitive disadvantage as a result of the new disclosure requirements) and the EU is expected to introduce similar measures if proposals for a fourth money laundering directive are adopted.
• Criminal sanctions will apply to companies and their officers, and to individuals, for non-compliance.

Any information contained in this article is intended as a general review of the subjects featured and detailed specialist advice should always be taken before taking or refraining from taking any action. If you would like to discuss any of the issues raised in this article, please get in touch with your usual Olswang contact. This article was included in our Olswang Corporate Quarterly Autumn 2014 publication.