In line with the European Commission’s desire for increasing transparency on who really owns companies and trusts, the proposed Fifth Money Laundering Directive is likely to introduce further amendments to the existing regime, potentially including the reduction of the 25% threshold for disclosing a shareholder or beneficial owner to 10%.
Background and the existing regime
In recent years, there has been increasing focus, both by Government and in the media, on corporate transparency. The days where nominee shareholders and directors could be used to mask ownership structures, or to protect privacy, are a thing of the past. At the moment this mainly affects unlisted companies, but there are moves to publicly identify the owners of offshore companies owning UK property.
As most are no doubt aware, April 2016 brought new rules requiring all unlisted UK companies and LLPs to keep a PSC Register, identifying any persons with significant control or influence over such entities and a requirement to file details of the same with Companies House – essentially to identify the beneficial owners of the entity.
Broadly, a “person with significant control” over a company is someone who:
- directly or indirectly, holds more than 25% of the company shares;
- directly or indirectly, holds more than 25% of the voting rights in the company;
- directly or indirectly, holds the right to appoint or remove a majority of the company’s board of directors;
- has the right to exercise or actually exercises “significant influence or control” over the company; and/or
- has the right, where the individual is a trustee, to exercise or actually exercises significant control or influence of the activities of that trust or firm (of which the individual is a member) and the trust or firm meets one or more of the above conditions.
The PSC Register is primarily designed to identify people who control a company but there may be corporate shareholders which need to be identified on the Register in certain circumstances – known as ‘Relevant Legal Entities’.
What this means in practice:
The PSC regime is not just another Companies House filing requirement, but part of a broader move towards transparency of ownership and control.
A company must take “reasonable steps” to identify those individuals or entities to be shown on the Register and the Government has issued guidance on this which can be found here https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/621571/170623_NONSTAT_GU.pdf. Companies are also required to monitor the Register and keep it up to date.
Not only that, but whereas previously Companies House needed to be updated when the annual confirmation statement was filed, but now there is an obligation to update Companies House within 14 days of any change to the company or LLP’s PSCs. It is easy to overlook this obligation and it needs to be part of the thought process of every company when making changes to ownership/control.
The potential penalties show how seriously the government take this legislation. Failure to take reasonable steps to identify PSCs is a criminal offence. Defaulting companies/officers of such company are subject to an unlimited fine and/or a maximum of two years’ imprisonment. The Government’s guidance (see link above) gives some non-exhaustive examples of what might constitute ‘reasonable steps’, which includes reviewing the company’s register of members, and considering its articles of association and any other agreements between the shareholders which may be relevant to voting rights or other forms of control.
Provisions Specific to Property – what’s next?
The UK’s focus is now turning to the purchase and holding of property. There is currently a consultation in relation to the issue of a register of beneficial owners of overseas companies owning UK property. The new register, the subject of that consultation, is designed to enable any person to discover who really owns UK property. It will be publicly searchable.
What will it look like?
The register will follow the design of the PSC register for companies, which means that any person who owns more than 25% of an offshore entity’s share capital (or equivalent if the entity is not a company), will be required to be named on the register. In addition, anyone who has significant influence or control over a company or trust will be named.
There are a number of protections being proposed which can be applied for, to allow the name of the person to be suppressed. They are generally to protect the individual where there is a real risk to their security.
The protections are not fool proof and, to avoid being named, an individual must be able to show the real risk that is involved, not just a perceived risk. It is unlikely that other than in the most severe cases a protection from being named will be granted.
If the new register is implemented, any new acquisition of UK property by an offshore entity will require a registration number for the acquisition to be registered. Without this number, it will not be possible for an offshore entity to acquire the property.
Where the property is already owned by an offshore entity, the government is proposing that there will be a period of one year for the offshore entity to register. If it does not, then a legal notice will be added to the property details on the land registry making it impossible for the property to be sold, leased or charged (mortgaged) in the future. This appears somewhat draconian, but demonstrates the government’s desire to make a real change in this area.
How to retain privacy. Is there any way?
If it is important to maintain privacy, it may be possible to use a trust structure to own the property. It may be possible to maintain your anonymity in this way, but only in respect of the public.
What about the register of trusts?
A new register of trusts has already been created. This is a private register of all trusts with a UK link and is held by the government and not publicly searchable. The register includes details of all trustees, beneficiaries, settlors and other relevant persons, so there is now no way of keeping your UK property ownership completely private.