Each company shall identify and obtain the “Ultimate Beneficial Owner” (UBO) information within three months from the date of coming into force of section 123A of the Companies Act, 2017 i.e. commencing on August 26, 2020.
According to the SECP document on the UBO issued here on Thursday for the companies, every limited liability partnership (LLP) shall within three months of coming into force of amended section 8 of the Limited Liability Partnership Act 2017 i.e. August 27, 2020, take reasonable measures to identify and obtain the information of its ultimate beneficial owners.
When contacted, the SECP officials told ProPakistani that section 123A of the Companies Act, 2017 became effective from August 26, 2020. Under this section, companies would be required to provide information of the UBO to the SECP within three months period. Strictly speaking, the three months period starts from August 26 and ends on Nov 26, 2020. However, the SECP can allow companies to submit this information to the SECP beyond this period after seeking necessary approval from the commission. But the compliance with the provision is mandatory for the companies.
The requirement to maintain UBO information is aimed at determining the true owners of a company who can only be natural persons. Corporate vehicles such as limited companies, limited liability partnerships and trusts, etc are at the heart of many tax evasion and money laundering schemes, as activities are not carried out in the name of real/natural persons, but by “legal persons” instead behind whom real controlling persons are concealed by the “corporate veil”.
UBO information is necessary to detect and prevent tax evasion, corruption, money laundering, terrorist financing, and other illicit behavior involving one or more companies or legal persons. Public trust in companies and markets largely depends on the existence of an accurate disclosure regime that provides transparency in the beneficial ownership and control structures of companies.
UBO information assists financial institutions in applying adequate customer verification procedures before the commencement of the relationship with their customers. This is also likely to assist the companies themselves in understanding their ultimate owners/controllers where there are complex corporate ownership and/or control structures, SECP said.
Different authorities may have a recognizable legal interest in obtaining information on UBO and control in order to investigate suspected illicit activities. Law enforcement authorities investigating and prosecuting money laundering and other crimes, tax authorities verifying compliance with tax laws, and securities regulators investigating market manipulation, unlawful insider trading, and fraud are just some of the authorities who may require information on UBO and control. Courts may also need such information in the context of litigation cases.
Legal and beneficial ownership information can assist law enforcement and other competent authorities by identifying those natural persons who may be responsible for the underlying activity of concern, or who may have relevant information to further an investigation, SECP maintained.
The SECP said that every company and every LLP has to prepare a register of its ultimate beneficial owners and shall timely record accurate and updated particulars in a timely fashion.
It said that the “Ultimate Beneficial Owner” “means a natural person who ultimately owns or controls a company, whether directly or indirectly, through at least twenty-five percent shares or voting rights or by exercising effective control in that company through such other means, as may be specified.
Every incorporated company and registered LLP shall have to provide a declaration of compliance to the registrar with the requirements to obtain, maintain, and update UBO information. In the case of a listed company, a copy of the said declaration shall also be filed with the Commission.
Additional particulars relating to the UBOs of subscribers holding at least 25% of shares, voting rights or controlling interest shall be obtained and maintained, and a declaration to this effect as required under section 16 of the Companies Act 2017 is required to be provided by the declarant authorized by the subscribers at the time of incorporation of a company in the “Application for Company Incorporation” on Inc. Form-II.
The foreign company shall also have to file a declaration that necessary UBO information at the time of “Registration of Documents of a Foreign Company” has been obtained and is available on record, as specified in FNC. Form-II, SECP added.
A comprehensive mechanism to identify and obtain the UBO information, as well as requisite forms, are provided in the Companies (General Provisions and Forms) Regulations, 2018. Similar mechanisms for limited liability partnerships and foreign companies are provided through amendments to the Limited Liability Partnership Regulations, 2018 and Foreign Companies Regulations, 2018 respectively.
For companies being newly incorporated, requisite amendments have been made to the Companies (Incorporation) Regulations 2017, SECP added.