The Small Business, Enterprise and Employment Act 2015: A legislative witch-hunt?

One cannot argue with the laudable intention to counter corruption, money laundering, and white collar crime.

But the potential, unintended consequences of elements of the Small Business, Enterprise and Employment Act 2015, which is currently out to consultation, are already causing concern.

Part of the Act, which got its royal assent in March, is aimed at increasing transparency in the ownership and control of companies, and increasing trust in UK business. It represents one of the most significant pieces of legislation affecting companies since the Companies Act 2006.

The Act is welcome news from an anti-corruption perspective, as the new rules help to identify and sanction those who hide their interest in UK companies to facilitate illegal activities.

But the new rules are likely to cause upheaval for both companies and shareholders, due to the controversial new requirement to keep a register of people with significant control.

With effect from January next year, private and unlisted companies will need to start keeping a register of people with significant control over the company (PSC register). Relevant legal entities will also have to be included on the register, which, from April next year, will have to be filed at Companies House and revalidated every 12 months.

Significant control is defined as having (either alone or jointly with others) more than 25 per cent of a company’s shares or 25 per cent of the voting rights,
or the rights to appoint or control the majority of the board of directors.

Little preparation time

This new requirement will no doubt be of concern for numerous shareholders with over 25 per cent of the equity or voting rights in a company, who, under a declaration of trust, appoint a nominee to hold the shares on their behalf. Such arrangements will no longer serve their primary purpose, which is to maintain the privacy of the beneficial shareholder.

Guidance on the meaning
of significant control is not expected until October 2015,
but the deadline for compliance with the establishment of a PSC register is January 2016, leaving very little time for companies – especially those with complex share structures – to prepare their PSC register.

Companies need to act now, therefore, to begin to establish internal procedures for gathering information on any persons with significant control to ensure the PSC register is in place on time.

Parts of the Act will be unequivocally welcomed by small businesses especially, including regulations forcing banks to provide information about alternative lending platforms, radical measures to tackle the UK’s late payment culture, and support for small companies wishing to compete for public sector contracts.

But, so far as transparency is concerned, the legislation might be regarded as something of a sledgehammer to crack a nut.

Yes, transparency is important if governments are to be able to act on white collar crime and, even more seriously, funding for terrorism. And it’s true that complex and obscure company ownership structures can be used to shelter tax evasion and other crimes.

But the truth is that criminals make up a tiny proportion of the companies and individuals who will be affected by the Act, which introduces yet more red tape into the business landscape.

Many perfectly ordinary and above-board investors prefer to maintain anonymity for all kinds of reasons, none of which involve criminal behaviour. One must fear, therefore, that there are going to be a lot of companies who may potentially lose out if investors cannot maintain that anonymity. SJ

Alison Brennan is a partner at North West firm DTM Legal