Register of beneficial ownership
One of the overarching themes of the Bill is to improve the transparency of company ownership and operations. One of the proposed changes will require a company to keep a register of persons who have "significant control" over it. The main question arising from this is what constitutes 'significant control' of a company. If a person falls into one of the following categories they will be deemed to have significant control:
- They hold directly or indirectly more than 25% of the shares in a company;
- If the company does not have a share capital, having directly or indirectly a right to receive more than 25% of the profits of a company;
- They hold directly or indirectly more than 25% of the voting rights in a company;
- They have the right to appoint or remove a majority of the board members; or
- They have the right to exercise or are exercising "significant influence or control". The legislation requires the Secretary of State to publish guidance on the meaning of ‘significance influence or control’ and on 15 January 2015, the Department of Business Innovation and Skills announced that a working group would be set up to provide guidance as to what will constitute "significant influence or control".
Holding shares directly or indirectly means that the company must look beyond the registered owner of shares and examine the underlying ownership or the controlling interest behind them. For example, if shares in a company are held by another corporate entity then there is a requirement to trace the natural persons having control of that entity. This new register will be held centrally by each company, although private companies will have an option to store their company information at Companies House.It will therefore no longer be possible for shareholders to hide the ultimate beneficial ownership of their shareholdings through the use of nominee companies and trusts.
Maintaining information at Companies House.
Under the Bill, private companies will have the option to hold any information at Companies House rather than maintaining a set of statutory registers at their registered office. Under the proposed new system a company can opt out of keeping records at their registered office and instead opt to lodge this information with Companies House. This will mean, for example, that the register of members can be kept at Companies House and any update filed with them. The company will be required to send any information to Companies House updating this register as soon as reasonably practicable after the change.
Of interest to company secretaries will be the replacement of the requirement to file an annual return. Currently, this is submitted once yearly to Companies House on the anniversary of incorporation showing a snapshot of the shareholdings as at the date the return is made up to. This a will be replaced with a requirement to check and confirm that the information held at Companies House is accurate once a year.
Under the Bill, all directors of a company must be natural persons. This will mean that corporate directors can no longer be appointed. Corporate directors have commonly been used particularly in large group structures where the top company acts as director of the subsidiaries and there have also been concerns that corporate directors are being used to disguise individuals' true involvement in companies. There will be a one year transitional period to allow companies sufficient time to remove corporate directors and from the end of this period any corporate directors will automatically cease to hold office.
Abolition of Bearer Shares
In another move to enhance corporate transparency, the Bill proposes to abolish Bearer shares. Bearer shares are a relatively rare type of share in which the shareholder is the person who holds the share certificate (rather than the person who is registered in the register of members as the holder of the shares). This means that transferring the shares is as simple as passing the certificate over to another person in the same way someone could pass over a £10 note.
There are several inherent problems with bearer shares. Firstly, it is not always be clear to the Company who actually owns the shares, given their ability to pass freely from person to person. Secondly, it is unclear as to what happens if a share certificate is lost or destroyed without the company's knowledge. This could clearly make it very difficult to keep the appropriate register of persons holding significant control.
The Bill will introduce a nine month period during which the company must notify the holders of the bearer shares who will be able to convert them into registered shares. After the nine month period companies will be required to seek a court order for the cancellation of any remaining bearer shares.
When will this happen
The Bill is proposed for a staged introduction beginning from the date of Royal Assent through to April 2016. If you wish to discuss any of the matters raised in this Bill or how this may affect your company circumstances get in touch with your usual Morton Fraser contact or with me on the details below.