This is the first Legal Long in a three-part series regarding the introduction of a PSC Register for corporate entities in the UK. This first part relates to companies, while the second and third parts deal with LLPs and UK Societas Europaea respectively.

Introduction

The Small Business, Enterprise and Employment Act 2015 amends the Companies Act 2006, by inserting a new Part 21A, to require companies to keep a register of people with “significant control” over the company and to make that register public (the “PSC Register”). This requirement will come into effect on 6 April 2016.

The new Part 21A applies to all companies, including UK Societas Europaea, other than an issuer to which Chapter 5 of the Disclosure and Transparency Rules sourcebook applies (i.e. publicly traded companies). The Register of People with Significant Control Regulations 2016 also includes an exemption for companies that have voting shares admitted to trading on a regulated market in an EEA state other than the UK or on any of those markets in Israel, Japan, Switzerland or the U.S., as specified in Schedule 1 of those Regulations.

The new PSC provisions in the Companies Act 2006 do not extend to LLPs; however, the Limited Liability Partnerships (Register of People with Significant Control) Regulations 2016 apply an adapted version of the new Part 21A to LLPs, so requiring them to keep a PSC Register from 6 April 2016 as well.

The following summary of the PSC Register set out in this Legal Long relates to companies (and, subject to Part III of this Legal Long series, UK Societas Europaea) only.

PSC Register

Companies will be required from 6 April 2016 to establish, maintain and keep available for public inspection a PSC Register, in addition to its existing registers (such as the register of directors and register of members). The PSC Register will identify and record every person with significant control over the company (each, a “PSC”). This requirement applies even if the company has no PSCs or has not yet been able to definitively identify them.

Furthermore, with effect from 30 June 2016, a company will be required to file certain PSC information with Companies House as part of its annual Confirmation Statement (formerly, the Annual Return).

Private companies have the option of keeping PSC information on the public register at Companies House rather than in a separately maintained PSC Register.

The aim of the PSC Register is to increase transparency over who owns and controls UK companies and, according to the Department of Business, Skills & Innovation (BIS), will help inform investors when they are considering investing in a company and also help to support law enforcement agencies in money laundering investigations.

Who is a PSC?

A PSC is an individual who, either alone or as one of joint holders of a share, meets one or more of the following conditions:

  1. holds, directly or indirectly, more than 25% of the shares in the company;
  2. holds, directly or indirectly, more than 25% of the voting rights in the company (and voting rights held by the company itself are disregarded for this purpose);
  3. holds, directly or indirectly, the right to appoint or remove a majority of the board of directors;
  4. exercises, or has the right to exercise, significant influence or control over the company;
  5. exercises, or has the right to exercise, significant influence or control over the activities of a trust (of which the individual is a trustee) or firm (of which the individual is a member) and the trust or firm itself meets one or more of the preceding conditions (if it were an individual).

The Secretary of State is required to publish guidance as to the meaning of ‘significant influence or control’ and the BIS published its statutory guidance on 27 January 2016, following its December 2015 consultation, which can be briefly summarised as follows. 

Meaning of ‘significant influence or control’

The guidance states that control and significant influence are alternatives and that neither has to be exercised by a person with a view to gaining economic benefits from the activities or policies of the company, trust or firm.

Control – where a person can direct the activities of a company, trust or firm, this would be indicative of control.

Significant influence – where a person can ensure that a company, trust or firm generally adopts the activities or policies they desire, this would be indicative of significant influence.

Right to exercise control or significant influence - the above conditions in (iv) and (v) require the person to have the right to exercise or actually exercise control or significant influence. A person may hold the right to exercise in a variety of circumstances, such as under the provisions of a company’s constitution, the rights attached to shares or securities held by such person or via a shareholders’ agreement or other agreement. The guidance provides examples of such a right, including a right to veto or absolute decision over specified reserved matters, but states that these examples do not constitute an exhaustive list. The right to exercise control may result in that person being a PSC regardless of whether they actually exercise that right.

Actually exercise control or significant influence over a company - the guidance provides a list of situations which would be indicative of a person actually exercising control or significant influence over a company for the purposes of condition (iv) above e.g. (a) if that person is involved in the day to day management and direction of the company i.e. not a member of the board, but one who regularly or consistently directs or influences a significant section of the board or who is regularly consulted on board decisions; (b) a director who owns important assets or has key relationships which are important to the running of the business (e.g. IP rights) and uses this additional power to influence the outcome of board decisions; and (c) a person whose recommendations are always or almost always followed by shareholders who hold the majority of voting rights.

Excepted roles with relation to companies - the guidance gives a non-exhaustive list of roles and relationships which would not, on their own, result in that person being considered to be exercising control or significant influence for the purposes of condition (iv) above, provided however, that a person may still be a PSC if the relevant role or relationship differs in material respects from how that role or relationship is usually understood.  Examples listed include:

  1. a person providing professional advice, such as a lawyer, accountant, financial advisor etc.;
  2. a third party dealing under a commercial or financial agreement, such as a supplier, customer or lender;
  3. a person who is an employee acting in the course of their employment, such as an employee, director or CEO of a third party which is treated as a person with significant control over the company;
  4. a director of the company (NB. a director who owns important assets or has key relationships which are important to the running of the business (e.g. IP rights) and uses this additional power to influence the outcome of board decisions (see (ii) above under Actually exercise control or significant influence over a company) can not rely on the excepted role of director to avoid being a PSC); and
  5. a person in relation to any association, professional standards organisation or network of companies or firms which promulgates common rules, standards or policies to be adopted by members of the network.

Right to exercise control or significant influence over a trust or firm – for the purpose of condition (v) above, the guidance notes that for a person to have the right to exercise significant influence or control over a trust or firm if that person has the right to direct or influence the running of the activities of the trust or firm e.g. (a) an absolute power to appoint or remove any trustee or partner; (b) a right to direct the distribution of funds or assets; (c) a right to direct investment decisions of the trust or firm; (d) a power to amend the trust or partnership deed; or (e) a power to revoke the trust or terminate the partnership.

Actually exercise control or significant influence over a trust or firm – for the purpose of condition (v) above, the guidance notes that a person is likely to exercise significant influence or control over a trust or firm if that person is regularly involved in the running of the trust or firm, such as a settlor or beneficiary who is actively involved in directing the activities of the trust, or a general partner in the case of a limited partnership.

Excepted roles with relation to trusts or firms - the guidance gives a non-exhaustive list of roles and relationships which would not, on their own, result in that person being considered to be exercising control or significant influence for the purposes of condition (v) above, which are substantially similar to those for companies. Again, a person may still be a PSC if the relevant role or relationship differs in material respects from how that role or relationship is usually understood. 

What PSC information must be made available?

The PSC information must include the PSC’s: 

  • name
  • service address
  • the country or state (or part of the UK) in which the PSC is usually resident
  • nationality
  • date of birth
  • usual residential address
  • the date on which the PSC became a registrable person in relation to the company in question
  • the nature of his/her control over the company (including level of shares and voting rights) 

This information must be updated by the company if it knows or might reasonably be expected to have known that a change to their PSCs has occurred. PSCs must inform the company of any changes to the information recorded in certain circumstances. 

The PSC information must be provided to Companies House on incorporation (a statement of initial significant control) and as part of the company’s annual Confirmation Statement thereafter. 

Those private companies which elect to hold their PSC Register at Companies House, rather than at their registered office, should note that they are required to update such register in the same way as if it was privately held i.e. on or around the date of any change(s), rather than wait for the annual Confirmation Statement. 

Information will be publicly accessible, provided however that a PSC’s usual residential address may only be accessed by specified public authorities and credit reference agencies. 

As mentioned above, the PSC Register can never be blank; thus, if for some reason the PSC information can not be provided, other statements will need to be made instead, explaining why the information is not available. 

Failure to provide PSC information 

Failure to provide accurate information on the PSC Register and failure to comply with notices requiring a person to provide information are criminal offences and may result in a fine or a prison sentence of up to two years. 

Next Steps

The Register of People with Significant Control Regulations 2016 (as amended) will come into effect on 6 April 2016.

Our next Legal Long in this series will summarise the PSC Register in relation to LLPs.