The corporate veil is a well-established principle in corporate law which states that the rights and duties associated with a company are the company’s alone and not the natural persons (i.e. the directors) who carry out the activities of the company. This principle has established a level of privacy for the shareholders who ultimately control the company but has, at times, been misunderstood by the public and misused by business people. As a result, over the past couple of years the Government has tried to demarcate the boundaries between transparency and privacy. This article explores recent and upcoming changes in relation to corporate transparency.
PSC register designed to improve transparency
In April 2016, the ‘People with Significant Control’ register (the “PSC”) was introduced with the intention of making it easier to identify the ultimate owners of a company. This move was designed to enhance the transparency of UK company ownership, with the eventual goal of making the UK one of the most transparent places in the world to conduct business. This hope becomes more pressing in the wake of the triggering of Article 50 in March 2017 and the desire of the UK to open up more extensive trade agreements with the world at large.
June deadline for updating your PSC
During June 2017 the PSC will be widened to include entities that have not previously been required to file this information with Companies House. It will therefore be important for such companies to consider who has ultimate control and be ready to file this information with Companies House by the end of June 2017. A recent Companies House press release revealed that, with effect from the 26 June 2017, companies will have two weeks to update their PSC and a further two weeks to notify Companies House. As such it will be important to have both your records and corporate structures in order. Additionally, the PSC will need to be updated as changes to control occur rather than annually (as per the current situation).
Incorrect PSCs easier to find
The purpose of keeping this information up-to-date will become more important for two reasons. Firstly, Companies House will be introducing a new function that will make the reporting of incorrect PSCs easier to search. Secondly, Companies House will introduce new compliance actions that will allow it to contact companies whose data is obviously incorrect and then for Companies House to help rectify the errors. As a result, if companies can arrange their corporate structures and PSC information now they may save considerable time and trouble in the long-run in complying with Companies House reminders.
Identification of ultimate owners of overseas' entities
Another change on the horizon is the creation of a new register identifying the ultimate owners of overseas entities which own property in the UK, or are involved in central government procurement. The law, as it is envisaged now, is focused on freehold titles as well as leases requiring registration and of which the initial term is at least 21 years. It is not yet known when this legislation will come into force but it is worth considering whether such a law could impact your business and, if it will, what you need to do in preparation.
The new corporate reality
The line between privacy and transparency can be difficult to draw. The changes outlined above appear to show that the principles of transparency are outweighing those of privacy. The changes anticipated present a new corporate reality, intended to raise both the profile and increase investment in UK businesses whilst making the UK a more attractive place to conduct business. Businesses actively managing these aspects will be in a much better position to respond to the inevitable changes that will occur in the coming years and, more importantly, will be in a position to act when opportunities come along.