Government proposals for enhancing corporate transparency

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The Government has been consulting on proposals to enhance corporate transparency. Draft legislation is expected shortly but there is more than a strong possibility that the current relaxed approach to beneficial ownership and nominee directors may be about to change. Corporate finance professionals, intermediaries, funds and corporates will need to confront a less flexible regime.

The Government’s proposals include:

  • a central registry of beneficial share ownership. The Government is proposing that companies hold information on their beneficial share ownership and make that information publicly available through registration at Companies House. Alternatively, the information could be required to be made available to the tax authorities and enforcement agencies but not be made more widely available than that. For these purposes, a “beneficial owner” will be defined as anyone with an interest in more than 25 per cent of the shares or voting rights of a company or who otherwise exercises control over the way a company is run. Individuals who collectively with others hold more than 25 per cent and who agree to vote the shares together will be deemed to be a beneficial owner. The Government is proposing giving companies a legally enforceable right to obtain information regarding beneficial ownership from their shareholders. The Government is considering whether to extend its proposals to other legal entities, such as limited liability partnerships
  • tackling the use of “nominee directors”. For these purposes, “nominee directors” are persons who are registered as the director of a company but who have in reality no role in relation to that company. According to the Department of Business, Information and Skills, on the assumption that an individual holding over 50 UK directorships is likely to be a nominee director, there are over 1,175 individuals acting as nominee directors in the UK and nearly 150,000 companies with a nominee director sitting on their board. One of the Government’s proposals is to require nominee directors to disclose that they have no actual role in the management of the company and to provide details of the real controllers. A concern in this context is the parent/subsidiary relationship as parent companies will often appoint a nominee to the board of their subsidiaries. Investors will also ordinarily appoint a nominee to represent their interests in their investee companies. These are perfectly good commercial practices and it is to be hoped that they will not in any way be undermined by whatever legislation comes out of the consultation
  • prohibiting the issue use of “bearer shares”. Bearer shares are shares where proof of ownership is a certificate rather than registration in the company’s register of members. These are uncommon in the UK as companies are obliged by statute to maintain a register of members. As well as prohibiting the issue of new bearer shares, the proposals suggest a transitional period in which existing bearer shares can be converted into ordinary registered shares.

Walker Morris comment
The proposals are driven in part by a belief that a more transparent corporate regime is likely to enhance the UK’s attractiveness as a destination for inward investment. There will no doubt be cases where that is true but maybe also cases where it is not. The impact of the proposals, if implemented in their current form, will be felt most by wealthy individuals who have established corporate structures to protect family confidentiality.