Unnecessary requirement to include every individual and legal entity in a company's chain of ownership is removed and final guidance published

From 6 April 2016 companies and limited liability partnerships must keep a register of people with significant control (PSCs). Only individuals can be PSCs, although a PSC register can also include 'relevant legal entities'. Legal entities which are not relevant legal entities cannot be included.

From 30 June 2016 this information will have to be delivered to Companies House when the company or LLP makes its annual confirmation statement (which replaces the annual return). Also, from 30 June 2016 new incorporations of companies and LLPs will involve sending a statement of initial significant control to Companies House along with the other required documents.

The regime also applies to Societates Europaeae.

In order to be a PSC of a company, there are five tests, at least one of which must be satisfied. So, for X to be a PSC in relation to company Y, X must satisfy one of the following:

  1. X holds, directly or indirectly, more than 25% of the shares in Y;
  2. X holds, directly or indirectly, more than 25% of the voting rights in Y;
  3. X holds the right, directly or indirectly, to appoint or remove a majority of the board of directors of Y;
  4. X has the right the exercise, or actually exercises significant influence or control over Y; or
  5. The trustees of a trust or the members of a firm meet any of the above conditions (in their capacity as such) in relation to Y or would do if they were individuals and X has the right to exercise, or actually exercises, significant influence or control over the activities of that trust or firm.

The regime does not apply to companies which have their own disclosure obligations under Chapter 5 of the Financial Conduct Authority's Disclosure and Transparency Rules (including fully listed companies, AIM companies and ISDX Growth Market companies) as well as companies with voting shares admitted to trading on a regulated market in the EEA or on specified markets in Switzerland, the USA, Japan and Israel.

The primary legislation is in Part 21A of the Companies Act 2006 (as inserted by the Small Business Enterprise and Employment Act 2015).

Relevant legal entity

A relevant legal entity is a legal entity which is 'relevant' in that it is required to maintain its own PSC register under Part 21A or is subject to DTR 5 or the equivalent disclosure obligations mentioned above. A relevant legal entity is registrable (in the PSC register of a company) if it is the first relevant legal entity in the company's ownership chain.

The amendment to Part 21A

Part 21A of the Companies Act 2006 has been amended by the Companies Act 2006 (Amendment to Part 21A) Regulations 2016. The two amendments that are made to section 790C (which explains some key terms in Part 21A) remove the unnecessary requirement to record every individual and company in a chain of ownership on a company's PSC register, where a company in the chain of ownership is not a 'relevant legal entity'.

The previous requirement

Paragraph (4)(a) of section 790C is determinative as to whether an individual with significant control over a company is either registrable or non-registrable in relation to the PSC register of a company. As originally drafted, an individual was non-registrable if the individual didn't hold any interest in the company other than through one of more relevant legal entities, over each of which the individual had significant control. Otherwise the individual was registrable. Therefore, if the interest was held by the individual indirectly through an intermediate relevant legal entity (rather than a direct holding or through an entity which was not a relevant legal entity), the individual's interest was not registrable in the PSC register of the company and the interest would be included in the PSC register of the intermediate relevant legal entity above it.

The same approach was taken in sub-section (8), in relation to whether a relevant legal entity was itself registrable in relation to the PSC register of a company; it was not registrable if its only interest in the company was through one or more other relevant legal entities, over each of which it had significant control.

The rationale for this structure is that the PSC registers of each company in a chain of company ownership does not need to include relevant legal entities above each company's immediate parent, because each such entity has its own disclosure requirement and the chain of ownership can therefore be followed to the individuals at the top of the chain. Therefore, a PSC of a parent company need not be included in the PSC register of its subsidiary provided that the parent was a relevant legal entity. Instead the parent would be included in the PSC register of the subsidiary and the PSC of the parent could then be identified by looking at the parent's PSC register.

However, if an entity in the chain was not a relevant legal entity (e.g. an unlisted overseas company) then this principle no longer applied and, using the same example, the PSC of the parent would then also be the PSC of the subsidiary.

The revised requirement

This unintended result has been amended by providing simply that at least one member of the chain of ownership need be a relevant legal entity in relation to a company. Where a corporate member of a chain of ownership is not a relevant legal entity, it is not registrable and cannot be entered into the PSC register. Instead, the company must look at the ownership and control of that legal entity until it identifies any controlling individuals or relevant legal entities. The process will continue up the chain until the company finds either an individual or a relevant legal entity. If no-one meets this requirement, the fact must be stated in the PSC register.

Guidance

The final version of its detailed guidance on the PSC register requirements for companies, societates europaeae and LLPs has been published by BIS and is available here and on the BIS website. Draft statutory guidance on the meaning of 'significant influence or control' for companies has been laid before Parliament. Draft statutory guidance on the meaning of 'significant influence or control' for LLPs will be laid before Parliament on 6th April.

BIS has also published summary guidance, which provides a broad overview on the PSC requirements for companies. Detailed guidance for individuals who may be PSCs is 'coming soon'.