July 26, 2013 The end of Annual Returns and Share Registers?
The Department for Business Innovation & Skills (BIS) is due to start a consultation in the autumn of this year (2013) on whether to abolish the annual return and the requirement for certain companies to hold a share register at the registered office.
Earlier this month, BIS issued a discussion paper titled ‘Transparency & Trust: Enhancing the transparency of UK company ownership and increasing trust in UK business“. This discussion paper primarily relates to the government’s commitment to produce a register of beneficial owners of UK companies and certain related matters such as abolishing bearer shares and nomineee directors. We are currently reviewing this discussion paper in detail with a view to publishing a response in the next few weeks, but you can see our initial thoughts on this commitment in the article here.
However, contained within this discussion paper, is also an acknowledgement of BIS’s plans to consult on the future of the annual return and the share register.
Some of the information on the annual return must also be filed with Companies House as and when the changes take effect. So, for example, if the directors (or their details) change during the year, then Companies House must be informed as and when this occurs. This information must also be included on the annual return and in some ways this is a duplication of the information which BIS is considering getting rid of.
Although we do not have a lot of information on this proposal and will have to wait for the full consultation for further detail, BIS also suggest that it could possibly be combined with the annual accounts filing to help reduce the burden.
In some ways this proposal seems sensible, but we can think of two clear benefits of the annual return which may be difficult to replicate if they are removed.
Firstly, it provides an annual snapshot of the status of the company which third parties can use to review. Without this it would be much harder to follow the relevant forms and updates supplied to Companies House to obtain a complete picture.
Secondly, many companies do not update the relevant details when they are required. The annual return provides a very useful reminder to companies of the information held by Companies House and the fact that it may not be up-to-date. This helps improve the accuracy of the information held by Companies House which can only be a good thing.
Our initial view is that the annual return is not a huge burden on UK companies and that the benefits probably outweigh the costs but we will consider the matter fully when the consultation is issued.
Currently, all UK companies are required to maintain a full set of registers. The full list is set out within our guide to the roles and responsibilities of a company secretary but they include the register of members, register of allotments and register of transfers. The register of members is not only a legal requirement but it is the definitive factor in deciding who is the legal owner of a share and one of the most important documents a company maintains.
BIS has identified that there is a discrepancy between the information held on the share registers and that held at Companies House. There are also differing disclosure requirements relating to the two sets of information. BIS are therefore considering removing the requirement to maintain the share registers at the registered office and replace it with de facto share registers maintained at Companies House. In effect, Companies House would take on the role of a share registrar, albeit only for companies with simple and stable share structures.
In practice, we suspect there are many thousands of companies that do not maintain complete and accurate share registers and some which don’t maintain any at all. As well as being a breach of the law, it also leads to many problems relating to ownership and diligence relating to a company. Having these maintained at Companies House may improve this, but it may also lead to other new problems.
This could be a far reaching reform, that will need to be considered in detail when the consultation arrives.