Beneficial Ownership Obligations for Charities that are Companies
Since the end of 2016, corporate entities (including charities which are companies, most likely companies limited by guarantee) have been obliged to maintain information about their beneficial owners on an internal beneficial owner register (with very limited exceptions, which will not apply to charitable companies). If your charity is a company, it must adhere to this obligation. Up until recently, there was no obligation on companies to make this information public.
The European Union (Anti-Money Laundering: Beneficial Ownership of Corporate Entities) Regulations 2019 (the “New Regulations”) were introduced in March 2019 as a further measure to assist to combat money-laundering and terrorist financing. Part 3 of the New Regulations established the Central Register of Beneficial Ownership (the “Central Register”). Existing companies, including charitable companies, are required to file their beneficial ownership information in the Central Register, which is maintained by the Registrar of Companies, by 22 November 2019.
Companies incorporated after 22 June 2019 will have 5 months from their incorporation to submit the required information to the Central Register.
Who is a beneficial owner?
A beneficial owner is defined as:
“any natural person who ultimately owns or controls a legal entity through direct or indirect ownership of a sufficient percentage of the shares or voting rights or ownership interest in the relevant entity, or through control via other means”.
Charities do not have “beneficial owners” in a conventional sense. Their assets are held by the charity for its particular charitable purpose and the charity is operated for the benefit of its beneficiaries. However, because the New Regulations apply to charities which are companies, all such charities have a legal obligation to submit the required information to the Central Register.
This means that charitable companies must interpret the beneficial owner definition in light of their own circumstances, to ascertain what individuals are classified, within the meaning of the New Regulations, as the beneficial owners.
An “ownership” interest of over 25% is considered a sufficient percentage to qualify as a beneficial owner. In the case of a company limited by guarantee, the members are at law its owners and are entitled to exercise, through their right to vote at general meetings, some control over the company.
If there are three or fewer members in a company, those members are likely to meet the definition of “control” within the New Regulations, because each member has greater than 25% of the voting rights. As mentioned above, the definition does not take account of the fact that, in the context of charities, the “ownership” or voting interest is exercised strictly for the benefit of the charitable purpose of the charity.
If there are four or more members in a company (which is typically the case in most charities), none of them will individually have the “ownership” interest of over 25% (unless the constitution or other agreement specifically provides that they do) and therefore they will not qualify as a beneficial owner. In this case, the definition of “senior managing officials” becomes relevant as further explained below.
The concept of “control” must always be carefully reviewed by charities to determine whether, even without an “ownership” stake in excess of 25%, there is any other person (or persons) who exercises sufficient voting rights or control over the company, directly or indirectly. An analysis of the constitution of the company should assist in this regard. If a person other than a member or a senior managing official exercises control, they should be listed as a beneficial owner.
Sometimes a charity will be unable to identify any beneficial owners, having exhausted all possible means, either because there are four or more members, or because no one else exercises sufficient voting rights or control by other means.
In this instance a charity must enter the details of its “senior managing officials” on its beneficial ownership register and on the Central Register. The senior managing officials of a company include its directors and chief executive officer.
Information to submit to the Central Register
Once your charity has identified its relevant beneficial owners, it will be required to obtain the following information for those individuals and submit it to the Central Register:
date of birth;
PPS number (if the person has one). Each PPS number will be “hashed” (meaning that once the number is submitted it becomes protected by an algorithm) to keep it secure and will not be available for inspection;
nature and extent of the interest held or control exercised;
date the beneficial owner was first added to the register;
and date of cessation of beneficial ownership.
If a beneficial owner or senior managing official does not have a PPS number (for instance, because he or she is not resident in the State and is not an Irish tax payer), he or she must complete a form BEN2.
In completing a from BEN2, a beneficial owner or senior managing official will be required to state his or her name, address, date of birth and nationality. Once completed, the form must then be declared as being correct before a notary public in the declarant’s home jurisdiction after providing the notary with proof of their identity.
A beneficial owner or senior managing official without a PPS number can make the declaration in Ireland by making a statutory declaration before a notary public, commissioner for oaths, solicitor or the usual classes of person entitled to administer oaths.
The field requesting information about the nature and extent of the interest held, or control exercised, provides an opportunity for the charity to note the charitable status of the company. Charities may wish to insert the following wording into that field:
As the company is a registered charity, it does not have beneficial owners in a conventional sense. Its assets are held by the company for the charitable purpose and the company is operated for the benefit of its beneficiaries. For the purposes of complying with the European Union (Anti-Money Laundering: Beneficial Ownership of Corporate Entities) Regulations 2019 (the New Regulations) the company has provided the details of the persons listed in this submission as its beneficial owners (within the meaning of the New Regulations).
Charitable companies must ensure that the information on the Central Register is kept up-to-date. Charitable companies must also update and maintain their internal beneficial ownership register as and when there is any change to beneficial ownership as defined above.
Who can access information on the Central Register?
Unrestricted access to the Central Register will be provided to certain members of:
An Garda Síochána;
Criminal Assets Bureau;
Inspector appointed by the Director of Corporate Enforcement (to establish who is financially interested in or controlling or influencing a company).
Fines for non-compliance
The penalty for non-compliance with the New Regulations is a class A fine (up to €5,000) or, on indictment, a fine not exceeding €500,000. In addition to these fines, custodial sentences of up to 12 months can be imposed on any person who makes a statement to the Registrar of Companies which is false in a material particular, and does so knowingly or recklessly.
What requirements are there for charitable trusts?
Charitable trusts are also required to maintain and hold an internal beneficial ownership register. However, there is no requirement at this time for trusts to file details of their beneficial owners on a public register. A deadline of 10 March 2020 has been set by the EU for the establishment of a central beneficial ownership register for trusts.
If your charity is a company, you should ensure that your charity’s internal beneficial ownership register is complete. You should also start preparing the information to be submitted to the Central Register, noting the deadline of 22 November this year.
Charities should ensure that the people to be listed as beneficial owners are fully informed and aware that their details will soon become centralised and open to public inspection on the Central Register.
Although the concept of “beneficial ownership” does not sit well with charities, there is an opportunity for charities, within the Central Register, to explain that its assets are held for charitable purposes.