Company law changes impose new requirements to identify hidden company owners.
Business owners who have appointed a nominee shareholder so that they can enjoy anonymity in relation to their ownership of a company will need to make their interest public under new transparency rules coming into force from 6 April 2016.
The new requirements
The new rules require most companies, including many small businesses, to maintain a new register of persons with significant control, known as a PSC register. The purpose of the PSC register is to increase transparency and, therefore, improve trust in UK business.
The rules state that a person who, directly or indirectly, owns more than 25 per cent of the shares or voting rights or can appoint or remove the majority of directors of a UK company, or who has the right to or actually exercises significant influence or control over such a company will need to be named on the PSC register.
From 6 April 2016, companies will need to keep a PSC register at their registered office or another location notified to Companies House. The PSC register must be available for inspection at no charge.
Further, from June 2016, companies will need to provide Companies House with the information held on their PSC register along with the company’s confirmation statement, which will replace the annual return. New companies do not escape the rules, as they will need to provide this information on incorporation so that it can be made publicly available.
There is no hiding place if the owners or controllers of the company are another company or a limited liability partnership (LLP). Subject to some exceptions, companies or LLPs who own or control a company will also need to be put on the PSC register.
The new rules are set out in a new Part 21A to the Companies Act 2006 and are being implemented through amendments to the 2006 Act made by the Small Business, Enterprise and Employment Act 2015 and through the draft Register of People with Significant Control Regulations 2016.
[expandable link=”Click to read more”] The impact on nominee arrangements
The consequence of the new rules is that companies will, in many circumstances, now have to “look through” the individuals or companies which hold their shares. One of these circumstances is where individuals have appointed a nominee shareholder.
A nominee shareholder is an individual, company or LLP that is granted the responsibility of holding shares on the behalf of the actual owner. Such a nominee shareholder is named publicly as the holder of the shares, but he/she is accountable to the actual owner of the shares who remains anonymous. The relationship between the nominee shareholder and the actual owner is usually governed by a declaration of trust or other confidential agreement.
Non-statutory guidance published by the Department for Business, Innovation and Skills (BIS) sets out a series of examples of the types of relationships and roles which a person may have with a company and which may now lead to that person being deemed to have significant influence or control over that company.
Although not having the force of law, the BIS guidance indicates that if shares or rights in a company are held by a nominee, the company should treat them as if they were held by the person for whom the nominee is acting. If this person is a person with significant control, a company must enter their details on the PSC register.
What details will be on the register?
Individuals will have their name, service address, country or state of usual residence, nationality, date of birth and their usual residential address recorded on the PSC register. Companies or LLPs will have their corporate or firm name, registered or principal office, legal form, governing law and registration number shown.
The PSC register will also reveal the date on which the person became registrable and indicate which of the significant control conditions they satisfy. As well as the type of control, the PSC register will show the extent of control by reference to three bands – more than 25 per cent but less than or equal to 50 per cent, more than 50 per cent but less than 75 per cent, or 75 per cent or more.
Duty on companies to investigate and obtain information
Companies will be under a new duty to take “reasonable steps” to find out if there is anyone who needs to be named on the PSC register and, if so, name them. Subject to some exceptions, companies must give notice to anyone whom it knows or has reasonable cause to believe is a person who should be named on the PSC register.
If a company fails in this duty, both the company and its officers may be committing a criminal offence punishable by a prison sentence of up to two years, a fine, or both.
Duty on persons to supply information
Persons with significant control are required to disclose their interest if they know or ought reasonably to know that they should be named on the PSC register in respect of a company.
Persons with an interest who fail to respond to a notice from a company seeking to investigate and obtain information, or who fail to comply with their duty to supply information could have their shares or voting rights in the company frozen until he/she provides the necessary information. Ultimately, if a person has their interest frozen in this way, that person will be prevented from selling, transferring or receiving any benefits in relation to that interest or exercising rights attached to that interest.
Advice for companies and individuals
Companies should be taking steps to prepare for the new rules now. Companies should review their register of shareholders with the new rules in mind, identifying those persons, companies or LLPs with significant control. Some companies might also want to get a head start by contacting shareholders now to ask if they know or have reasonable cause to believe that a person should be on the PSC register.
Shareholders, including nominee shareholders, should familiarise themselves with the new rules and prepare to receive information-gathering notices from companies in which they have an interest.
Persons can have some or all of their information on the PSC register withheld from the public register, but only if they have reason to believe they are at serious risk of violence or intimidation due to the activities of the company they are involved with. Such persons may want to take advice and apply to keep their details off the public register.[/expandable]