Government Consults on wide-Ranging Proposals For Reform of Transparency of UK Companies
The Department for Business, Energy & Industrial Strategy is consulting on wide ranging reforms to increase the transparency of UK corporate entities, in a bid to help combat economic crime and to ensure accuracy and availability of corporate information.
The reforms would result in the most wide ranging changes to corporate registration requirements since 1844.
For a copy of the Consultation on Corporate Transparency and Registration Reform and for information on how to share your views, please see the following link https://www.gov.uk/government/consultations/corporate-transparency-and-register-reform.
In this article, we have summarised some of the key proposals, with a particular focus on how these reforms might affect directors, shareholders and Persons of Significant Control (PSCs) in the UK. The reforms also deal with protecting personal information, and plans to share information with other agencies. These are not the subject of this bulletin, but more detail can be provided on request.
Key reforms around directorships include:
· a proposal to only allow “verified individuals” to become directors of a company. This would involve undertaking identity checks on directors both in incorporation and on new appointments. Importantly it is proposed to make the appointment of a director conditional on that director being able to verify their identity;
· a proposed cap on the number of directorships that any individual may hold concurrently, based on the assumption suggested in the report that it is unlikely that a person could reasonably be considered to be performing their duties as a company director where they are “holding large numbers of directorships”. The Consultation does not define how many directorships would constitute a large number, though it is clear that this will have a significant impact on individuals with concurrent directorships, particularly within large corporate structures;
· providing each director with a “unique identifier”, making it easier for information to be located on all directorships held by that individual;
· separate to the reforms proposed by the Consultation, it is worth remembering that the Small Business, Enterprise and Employment Act 2015 will require all company directors to be natural persons and prohibit corporate directors (subject to limited exceptions). Whilst there remains no confirmed date for implementations or exact details of what the exceptions will be, companies should start to consider how this will affect quorum requirements and decision making, particularly in large corporate groups.
Shareholders and Persons of Significant Control (“PSCs”)
· The proposals recommend that Companies House should carry out identity checks for shareholders above a certain ownership threshold (the threshold to be determined) and for all PSCs.
· The proposal recommends that, if identity checks were not be made mandatory, the introduction of ‘flags’ on the Companies House register where shareholder or PSC identities have not been verified. This has the potential of allowing the information at Companies House to be used by potential customers and suppliers for due diligence.
· Since 2016, UK companies (except listed companies) and limited liability partnerships (LLPs) have been required to declare their persons of significant control. Currently, it is a director’s responsibility to file PSC information on behalf of the company and if they do not provide this information, it is the directors that will have committed an offence. Under the new proposals, it is proposed that the responsibility to file would rest with the PSCs’ themselves. It has been suggested that introduction of a criminal offence would be an appropriate sanction for PSCs’ who refuse/fail to provide the information requested.
· It is also proposed to require any change in shareholders to be filed at Companies House within 14 days of such change. This would change the current practice of the company only filing an update on an annual basis.
Querying Information Submitted to Companies House
The Consultation proposes to give Companies House more statutory discretion to query and check information, before that information is placed on the register. Examples might include:
· where a company files information that represents a significant change from its previous status, such as a significant increase in share capital;
· where a company claims an exemption from filing full accounts, Companies House might request proof that the company is entitled to the exemption; or
· where a company uses a registered address, Companies House might seek confirmation of the right to use that address.
The proposed reforms would, if implemented, lead to Companies House taking a much more active role in collecting and interrogating information about UK companies, and would lead to more transparency of information around directorships, shareholdings and PSCs within UK companies. It is evident from the consultation that the government intends to continue to increase corporate transparency in the UK, in effect furthering the purpose of the introduction of the PSC regime.
Whilst we await the outcome of this Consultation, it appears evident that the transparency of ownership and ultimate control of UK companies is set to increase. In the first instance, companies and corporate groups should make sure that they are up to date with the current requirements around identifying and registering their PSCs with Companies House, and ensuring that they keep abreast of the changes going forward.
Ward Hadaway’s dedicated company secretarial team can help you to get your PSC information completed, and filed with Companies House. They are also available to discuss the potential implications of the consultation on your business. To discuss in more detail, or to find out more about Ward Hadaway’s company secretarial service, please get in touch with Mathew Cormack on Matthew.Cormack@wardhadaway.com or 0330 137 3412
The consultation closes at 11:45pm on 5 August 2019.
© Generator 2021 - All rights reserved.
Delivered with Cargo Creative