Abolition of corporate directors and compulsory registration of significant controlling interests.
New legislation is on the way to prohibit the use of corporate directors and compel companies to maintain publicly accessible registers of individuals with significant controlling interests.
Background
At the 2013 Lough Erne G8 Summit, world leaders agreed to tackle tax evasion, money laundering, terrorism finance and other criminal activity perpetrated through corporate structures by increasing corporate transparency, making it easier to link companies to the individuals ultimately controlling them.
On 25 June 2014, draft legislation to achieve that objective in the UK was first presented to Parliament. Assuming sufficient Parliamentary time is made available, this new legislation, the Small Business, Enterprise and Employment Bill, is expected to be enacted into law in 2015.
Prohibition on corporate directors
The law currently allows UK companies to have corporate directors – other companies, limited liability partnerships and similar – provided they also have at least one natural person on their boards.
The new legislation, once enacted, will prohibit most UK companies from having corporate directors. Following enactment, there is expected to be a one year grace period in which existing corporate directors can be replaced with natural persons.
Whilst the Government has indicated that regulations exempting charities and corporate groups containing large companies from the prohibition will be enacted, it is anticipated that these exemptions will be narrowly applied.
Compulsory registration of significant controlling interests
The law currently requires UK companies to maintain registers identifying directors and shareholders.
The new legislation, once enacted, will require most UK companies1 to also create and maintain a publicly accessible register (a PSC Register) of individuals who have a significant controlling interest by virtue of:
- Directly or indirectly holding 25%+ of the company's shares; and/or
- Directly or indirectly being able to exercise or control exercise of 25% of the company's voting rights; and/or
- Directly or indirectly being able to appoint/remove or control the appointment/removal of 25% of the company's board; and/or
- Otherwise exercising or having a right to exercise significant influence or control over the company (by reference to guidance yet to be published by the Secretary of State),
unless that interest derives solely from the individual's interest in another company which is similarly required to maintain such information. The legislation will also require the registration of trustees who hold a significant controlling interest on behalf of others and may, depending on the degree of influence and control they have over the trust, additionally require the registration of trust protectors, settlors and/or beneficiaries.
Persons with a significant controlling interest in a company will be under a legal duty to supply details to the company and to notify the company of any changes and it is likely that PSC Registers will swiftly become a feature of both KYC and corporate due diligence processes.
Other changes
The new legislation contains several other proposed changes including, amongst other proposals:
- The abolition of bearer shares
- An overhaul of annual returns
- Enabling companies to maintain certain statutory information at Companies House instead of in their own registers
- Extensions to director disqualification legislation
Action points
Companies and directors of companies who fail to comply with the new legislation (once enacted) will be deemed to have committed a criminal offence, so it is important that businesses and other organisations act in good time to:
1. Review board compositions, identify where individuals are required to replace corporate directors and determine their remit
2. Compile a register of significant controlling interest holders
Footnotes
1 Publicly traded companies already required to make information about major shareholders available under certain DTR rules will be exempt.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.