The Small Business, Enterprise and Employment Bill (the Enterprise Bill) was introduced to Parliament shortly before the summer recess. The bill will enter its Commons Committee stage during October. Subject to the will of Parliament, the Government intends it to be passed into law before the May 2015 General Election, but key provisions will not come into force for at least a year.
The stated overriding objectives of the Enterprise Bill are to: make it easier for small and medium sized businesses to grow in the UK; attract further investment into the British economy; and strengthen Britain’s global recognition as a great place to do business, founded on trust and integrity. The Enterprise Bill includes provisions to increase the transparency of company ownership and control. The Enterprise Bill also changes some company filing requirements, including improving the accuracy of public records.
Transparency & Trust
In July 2013, the UK Department for Business Innovation & Skills (BIS) launched its major consultation Transparency & Trust: Enhancing the Transparency of UK Company Ownership and Increasing Trust in UK Business. The consultation was launched by the Business Secretary, Dr Vince Cable in conjunction with the British Prime Minister making a personal commitment at the Lough Erne G8 summit to create greater transparency as to UK corporate ownership through a new obligation to be placed on most UK companies to hold a public register of beneficial owners.
The Enterprise Bill contains complex provisions which will lead to both the creation of registers of persons with significant control over most companies (PSCs) and the creation of a central register at Companies House. It is clear that the system proposed will be complex and require significant secondary legislation.
Obligation placed on companies
Subject to certain exemptions (notably group companies and those companies subject to the FCA’s DTR 5 (including Officially Listed and AIM companies)), companies will need to obtain information as to all persons ultimately holding or controlling 25 per cent. of its shares, whether through voting rights or other influence. In almost all cases, PSCs will be natural persons. Persons contacted by the company will need to respond and will be liable to conviction if they fail to do so.
The information which will need to be held on a PSC register:
Once a company has obtained information it believes to be accurate in relation to its PSCs that company will need to enter the same into its PSC register. The PSC register will only be as accurate as the information provided. Generally the company will not need to verify this information. However, it is important to recognise that, the Enterprise Bill regime is additional to the EU anti-money laundering regulations and the two regimes are not fully integrated.
The PSC register regime fails to deliver genuine transparency as to company ownership
Notwithstanding its objectives, the manner in which BIS is seeking to structure the PSC register regime will fail to deliver true transparency. Any central register will not be comprehensive. The exemptions for group companies means that an interested party will still need to track up through a group structure in order to identify the ultimate controllers. Companies are already obliged to make disclosure in their annual accounts of ultimate controlling parties. BIS could have simply extended this obligation to look beyond legal ownership into beneficial control with the current Part 22 Companies Act 2006 identification regime for public companies being extended to all. The complexity of the PSC register does seem to run contrary to the transparency objective of the Enterprise Bill.
The new law will contain a lot of complexity which companies will need to get used to. Companies (and investors) will need to understand the new procedures as soon as possible and work together to deliver an efficient adoption of the new regime. BIS’s own impact assessment recognises that these measures will cost the government no more than £300,000 a year to establish and maintain but will cost business over £500 million in year one and almost £80 million each year thereafter: this will hit privately owned businesses hardest and does not appear compatible with a desire to support business growth.