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Beneficial owner filings hit snag - Law to be amended to exempt listed companies

Published:Monday | April 9, 2018 | 12:00 AMAvia Collinder/Business Reporter
Judith Ramlogan, registrar & CEO of the Companies Office of Jamaica.

The Companies Office of Jamaica is learning the hard way that the mandatory requirement that all companies identify their beneficial owners on their annual returns should have had a carveout for publicly listed companies.

The stock of listed companies trade regularly, sometimes daily, which means their register of owners are likely to change with each trade. At a practical level, it means the shareholder information filed with the annual return once a year can become dated the very next trading day on the stock market.

Additionally, some listed companies have thousands and even tens of thousands of shareholders, creating unforeseen volumes of paperwork for filers of returns, and prospectively for the Companies Office to review.

The mandatory identification of the individuals who are the true owners of the companies registered with the Companies Office referred to as lifting the corporate veil is a legal requirement that took effect last December following an amendment to the law in June 2017.

Under the law, a beneficial owner is anyone who exercises ultimate ownership of a company, or the individual on whose behalf the shares are held or on whose behalf a share transaction is conducted. The beneficial owner must be an individual, even in circumstances where the entity is held through a company.

Companies Office CEO and Registrar Judith Ramlogan said further amendments to the Companies Act are pending: to exempt listed companies from providing beneficial ownership information.

In the meantime, given the challenges that have arisen, Ramlogan said the agency has taken a policy decision to accept the annual returns of listed companies without the beneficial ownership information. That is likely to exempt around 69 companies whose ordinary stock are listed on the Jamaica Stock Exchange.

Public companies that are not listed will be required to provide beneficial ownership information for persons who hold more than 25 per cent of the issued shares or 25 per cent or more of the voting rights.

"The legislation does not currently exempt public companies from the requirement to disclose the beneficial ownership of its shares. Several persons who file on behalf of publicly listed companies have reported that they are finding it difficult, if not impractical, to comply with this requirement given the large number of shareholders of a public listed company, which often consists of hundreds, and most times thousands, of members," said Ramlogan on Monday.

"The shares of publicly listed companies are also traded very frequently, resulting in an ever-changing membership. By the time the information is collected by the company and is required to be reported to the registrar, the shareholders and, ultimately, the beneficial owners would most likely have changed," she added.

The agency has more than 60,000 companies on its register. Approximately 4,940 have filed annual returns since the beneficial ownership requirement took effect.

"We are, however, currently unable to provide data on the number of companies which are compliant," said Ramlogan.

The agency is also facing other challenges differentiating between persons with "ultimate ownership" and those having "ultimate effective control" of the shares in the case of a corporate shareholder.

Ultimate effective control is defined in the law as held by an individual who is in a position to determine the policy of the company and controls more than 50 per cent of the company or voting rights, said the registrar.

"The practical result of this is that in the case of a corporate shareholder, the beneficial owner must always be an individual," but the identification of such persons "is challenging for public companies with thousands of members or private companies who do not have a single individual controlling more than 50 per cent of its shares," she said.

To get around it, the agency has told the relevant companies to designate representatives from their board of directors as beneficial owners.

But, the suggestion has been met with "great reluctance ... and it has been argued that whilst designating representatives from the board will suffice for reporting purposes, it may not be a true indication of the individual who is in actuality receiving the benefits of the shares," said Ramlogan.

They are also wary of the tax implications, and some companies are unwilling to indemnify their officers should future tax liabilities arise, she added.