The UK, in its role as president of the 2013 Lough Erne G8 Summit, was instrumental in leading the G8 members to agree on an action plan aimed at tackling the misuse of companies for criminal activities; in particular, tax evasion and money laundering. The UK government has followed up this action plan by publishing, through the Department for Business, Innovation and Skills (BIS), a series of proposed reforms of the UK’s company law aimed at improving the transparency and accountability of UK incorporated companies. The changes have already undergone a period of consultation, and it is expected that these changes will start to be introduced during 2015. This is relevant to all organisations (including U.S.-based companies) that have a UK company or trust within their group structure as they will need to prepare for details of their beneficial owners to be made publicly available in the UK.

Register of Beneficial Owners

For the first time, the names of beneficial owners of a UK incorporated company will be recorded in a publicly accessible register. For these purposes, a ‘company’ includes any entity filing information at Companies House (i.e. this includes companies limited by guarantee and limited liability partnerships). Companies will need to record:

1. information on individuals who ultimately own or control more than 25 percent of a company’s shares or voting rights, or who otherwise exercise control over the company or its management; and
2. where a qualifying beneficial interest is held through a trust arrangement, information on the trustees or any other natural persons exercising control over the activities of the trust.

The obligation to disclose the information is placed on both the company and the beneficial owners. The information required to be made available includes a beneficial owner’s full name, date of birth, nationality, country or state of usual residence, residential address, service address, date on which the owner acquired the beneficial interest in the company and details of that beneficial interest and how it is held. All of this information will be publicly available except for the residential addresses of the beneficial owners. In exceptional circumstances, it will be possible to make an application to the Registrar of Companies to protect certain beneficial owner information.

Companies that are subject to the Disclosure and Transparency Rules or whose shares are listed on a regulated market will be exempt from the requirement to keep a register of beneficial owners, as they are considered to already be subject to equivalent disclosure requirements. A subsidiary of such an exempt company will be required only to identify the relevant exempt company as the subsidiary’s beneficial owner – it will not be necessary to provide details on the owners of the exempt company.

It will not be possible to incorporate new UK companies without first providing the beneficial ownership information to the Registrar of Companies. Where a company fails to keep this information up to date, or where an existing company fails to provide the information, then the company’s directors may be personally fined and the company may ultimately be dissolved by the Registrar of Companies.

Other Significant Changes

In addition to the creation of a register of beneficial owners, the following changes are being made:

1. ‘bearer shares’ (i.e. shares that are owned by the holder of the share certificate, but for which there is no formal register of holders) will be abolished;
2. the use of corporate directors (i.e. a company acting as a director of another company) will be prohibited, subject to certain specific exceptions which have yet to be published; and
3. the courts are to be given greater flexibility when making orders to prohibit individuals from acting as a director of a UK company (for example, overseas convictions will now be considered).

European Approach

These changes mark the beginning of a European-wide shift in the approach to corporate transparency. Following the UK’s lead, the EU has voted to amend the proposed Fourth EU Anti-Money Laundering Directive to require that all EU member states keep public registers of the owners of companies, foundations and trusts incorporated in those states. Trusts were not originally caught by the proposed UK changes, but they are now featured in response to this wider EU approach.

Practical Considerations

The information being sought on beneficial owners is not new – all EU banks and professional firms have been required to gather similar information on their clients for some time to comply with anti-money laundering regulations. However, the fact that this information will be publicly available shows a significant change in approach. While the UK is taking the lead in implementing these changes, it seems that the rules will ultimately be implemented across the EU.

For now, all organisations which have a UK company or trust within their group structure will need to prepare for details of their beneficial owners to be made publicly available in the UK. Ultimately, this preparation is likely to extend to all organisations which have any EU-based company or trust within their group structure. In practice, this will require certain additional filings to be made at Companies House each year and it is likely that Companies House will need to amend certain of its forms and processes to take account of the new filing requirements. Where a company engages the services of a professional company secretary, then such secretary should already be aware of the new requirements.

Through VP Secretarial Limited, which provides bespoke company secretarial and compliance services, Vedder Price can incorporate UK companies, act as registered office and company secretary, provide an address for the services of process in the UK and maintain client UK companies in good standing. If you have questions about this update, please contact Richard L. Thomas at +44 (0)20 3667 2930, Sam Tyfield at +44 (0)20 3667 2940, Jonathan Edgelow at +44 (0)20 3667 2925, Lydia Sadler at +44 (0)20 3667 2926 or the Vedder Price attorney with whom you work.