The Small Business, Enterprise and Employment Act 2015 makes major changes to UK company law on 6 April. The new rules are aimed at achieving transparency of the beneficial owners and controllers of UK companies, and form part of wider international initiatives in this area. These include the EU's Fourth Money Laundering Directive, which mandates disclosure regimes for the beneficial owners of corporate entities across the EU by June 2017.

Under the UK rules, companies must keep a register of their individuals with "significant control" (PSCs) from 6 April this year. This will be one of the company's statutory registers, with similar content to the register of directors. The register must be open for public inspection. From 30 June 2016, companies must make their PSC information publicly available at Companies House when they file their annual "confirmation statement" (which replaces the annual return). There are criminal penalties for companies and their officers, PSCs, and others, if they do not comply with the rules. The government has issued extensive guidance on the new regime (although this is not yet in final form).

Which organisations must keep a PSC register?

The new rules apply to unquoted UK companies, as well as (under separate regulations) UK limited liability partnerships and Societates Europaeae. Most quoted UK companies will not have to keep a PSC register, on the basis that their significant investors should already be a matter of public record. Their UK subsidiaries must have a PSC register, but this will usually be straightforward.

What are the tests for "significant control"?

The basic tests 

Under the three basic tests, an individual has significant control over a company if he holds or controls:

  • more than 25% of its shares, or
  • more than 25% of its shareholder voting rights, or
  • the right to appoint or remove a majority of its board of directors. 

An individual can also meet any of these tests if he has a "majority stake" (usually, 51% of shareholder voting rights) in another company, or a chain of companies, that holds the shares or rights in question. (In effect, the rules assume that someone who has majority control over one company can control any shares or rights it holds in another company).

Other tests 

In addition to the three basic tests, there are two broader tests:

  • where someone has "significant influence or control" over the company, or
  • where someone has "significant influence or control" over a trust or partnership that meets any of the above tests (in effect, someone who "pulls the strings" of a trust or partnership that has significant control over the company).

The government has published draft statutory guidance on the meaning of "significant influence or control" under these broader tests. This says that a person has "control" over an organisation where he can direct its policies or activities. A person has "significant influence" if he can ensure the organisation adopts the policies or activities he wants. The guidance includes non-exhaustive principles and examples indicating whether someone has the right to exercise, or actually exercises, significant influence or control.

The PSC register

Who must be registered? 

The object of the new law is to identify and disclose the individuals with significant control over UK companies. A corporate entity that has significant control over a UK company will only be entered on that UK company's PSC register if the corporate entity is "subject to its own disclosure regime", the thinking being that you can then look at that corporate entity's public register if you want to investigate further – and so on up the chain until you identify the individuals at the top. Corporate entities that must be registered in this way include other UK companies and LLPs, and certain quoted companies (so-called "Relevant Legal Entities", or RLEs). Most overseas companies cannot be entered on a PSC register, so UK companies will need to look through them to the individuals or RLEs behind them.

What must companies and PSCs do? 

A UK company must take reasonable steps to identify and keep up-to-date a register of its PSCs and RLEs. PSCs and RLEs have corresponding duties to disclose their details to the company, once they are aware of their status, and any subsequent changes. The government's detailed guidance on the regime gives examples of the kind of information requests that companies must send to potential PSCs and RLEs from 6 April, and which PSCs and RLEs must respond to.

Who can look at the PSC register? 

Anyone can inspect a company's PSC register if they have a proper purpose. From 30 June 2016, companies must make their PSC information publicly available at Companies House on formation and when they file their annual "confirmation statement" (which replaces the annual return). However, the government is likely to increase the frequency for Companies House filings by June 2017, to bring the UK's rules in line with the EU's Fourth Money Laundering Directive.

What details must be registered? 

Once a registrable PSC has confirmed his details, the register must record his name, residential address, service address, country of residence, nationality, date of birth, the date he became registrable and the nature of his control. The register must give equivalent information for a registrable RLE (but there is no need to wait for the RLE to confirm its details before registering them). The rules say the register can never be empty, and set out specific statements that the company must include to show the status of its enquiries (and any non-compliance with its information requests).

Can any information be kept confidential? 

As with directors, the residential addresses of PSCs will not be available to the general public, and a PSC's day of birth will not be visible at Companies House. It is possible to apply to Companies House for a PSC's information to be protected, but only on the grounds that disclosure would put the PSC (or someone he lives with) at serious risk of violence or intimidation. There are transitional arrangements for PSCs that are registrable on 6 April and who apply to Companies House for their information to be protected by 30 June 2016, but are refused. They then have 12 weeks to make themselves non-registrable (e.g. to sell down their shares).

What are the penalties for non-compliance? 

It is a criminal offence 

There are criminal penalties for non-compliance by companies, PSCs and others (and their defaulting officers). At the extreme end, these can include up to two years' gaol and/or a fine.

The company can freeze the shares 

There is also a detailed set of rules that allows a company to impose restrictions on shares or rights if there is non-compliance with its information requests. Restrictions would include bans on exercising rights, transferring shares, being issued more shares or being paid dividends. The rules do not require companies to impose restrictions, but the government's guidance says that a company "must seriously consider doing so" as part of its obligation to take reasonable steps (and be able to justify any decision not to impose restrictions).

How do the rules apply to Limited Liability Partnerships? 

The PSC conditions

Separate regulations require UK LLPs to keep a PSC register, and apply similar provisions. There are some changes to suit the characteristics of LLPs, the most important of which relate to the three basic conditions for significant control. These say that someone has significant control over an LLP if he holds the right to share in more than 25% of the LLP's surplus assets on winding up, or more than 25% of members' voting rights, or the right to appoint or remove a majority of the LLP's management.

"Significant influence or control" 

The catch-all conditions, where someone has "significant influence or control" over an LLP, or over a trust or partnership that has significant control over an LLP, operate in a similar way as for companies. The government has published separate statutory guidance for LLPs (in draft) on what is meant by "significant influence or control" under these conditions. This is similar to the guidance for companies, but there are changes to address the circumstances for LLPs – for example, the LLP guidance says a person has significant influence or control over an LLP if he is likely to receive more than 25% of its profits.

What action should I take now? 

Companies and LLPs should begin the process of establishing the identity of their registrable PSCs and RLEs. This will be straightforward in many cases where a known individual or UK company holds more than 25% of the company's shares or voting rights. But where (for example) an unquoted overseas company has an equivalent shareholding, it will be necessary to investigate further to identify anybody with a "majority stake" in that company (and so on up the chain).

Companies and LLPs with complex ownership or control arrangements should also review their constitutional documents and agreements, and consider whether anyone has board control, or other control rights (or de facto control) of the kind described in the government's guidance on "significant influence or control".

From 6 April, companies and LLPs must have their registers in place. If they do not have the necessary information to complete the register at this stage, they should note the status of their enquiries and send out formal information requests.