From 6 April 2016, UK companies must identify and maintain a public register of persons with significant control. Those persons must supply companies with necessary information or face criminal and other penalties.

Introduction

The Small Business, Enterprise and Employment Act 2015 (SBEEA) introduced a new regime under which UK companies, limited liability partnerships (LLPs), and other UK corporate entities must maintain a register of people with significant control over the relevant entity (the PSC Register). The regime is intended to increase transparency concerning the identity of the ultimate beneficial owners of UK entities.

The Register of People with Significant Control Regulations 2016 (the PSC Regulations) provide details about the new PSC Register regime and how it applies to UK companies. Similar provisions relating to the application of the new regime in relation to LLPs are set out in the Limited Liability Partnerships (Register of People with Significant Control) Regulations 2016 (the LLP Regulations). The regime comes into effect on 6 April 2016.

Affected Entities

The new regime will apply to all UK-incorporated companies and UK LLPs. All listed and AIM-quoted companies will be exempt from the new regime because they are already subject to various reporting requirements.  Companies listed on the regulated market in another European Economic Area state, or in other markets (including the United States), will also be immune from the new regime.

Importantly, non-UK incorporated entities that operate within the UK are not subject to the regime.

This Alert only considers the regime as it applies to companies, but not to those that apply to LLPs (although they are very similar).

Meaning of a “Person with Significant Control”

Essentially, a “person with significant control” (PSC) is an individual who:

  • directly or indirectly holds more than 25% of a company’s shares; or
  • directly or indirectly controls more than 25% of a company’s voting rights; or
  • directly or indirectly has right to appoint or remove a majority of the board of directors of a company; or
  • has the right to exercise or actually exercises significant influence or control over a company; or
  • has the right to exercise or actually exercises significant influence or control over a trust or firm that meets one of the above four conditions.

The UK Government published guidance this month on what is meant by “significant influence or control”. It includes relationships such as limited partnership interests and commercial lenders. The guidance also sets out certain circumstances, such as the right to control key decisions relating to a business, which may indicate significant influence or control.

“Relevant legal entities” (RLEs) will also need to be disclosed on the PSC Register.  RLEs are essentially companies (or other entities) that would be PSCs if they were individuals and that are themselves subject to a disclosure regime, such as a UK listed company obliged to comply with Chapter 5 of the Disclosure and Transparency Rules.

What the New Regime Requires

Commencing on 6 April 2016 this year UK companies must:

  • maintain a PSC Register;
  • take reasonable steps to identify those people they know or suspect have significant control. There is now guidance on what constitutes taking “reasonable steps” for these purposes;
  • notify suspected PSCs or RLEs, requiring that person to confirm whether or not he/she is a PSC or an RLE and to provide specified information. A company may also be obliged to serve notices on others the company knows/suspects knows the identity of any PSC or RLE;
  • make the necessary filing at Companies House in relation to the information contained in the PSC Register;
  • take reasonable ongoing steps to ensure that the company’s PSC Register is kept up-to-date; and
  • take other reasonable steps required under the PSC regime to obtain the necessary information to complete the PSC Register properly.

From 30 June 2016, UK companies must also provide the information on the PSC Register to Companies House when they file their annual confirmation statement (which will replace the annual return) or, for new companies, on incorporation. The information filed at Companies House will be available on a free searchable public register. Private companies will have the option to maintain their PSC Register at Companies House provided that no PSC objects.

Consequences of Breach

Failure by a company to comply with its duties under the new regime will be a criminal offence, and the company and its directors, or other officers, may be subject to an unlimited fine or imprisonment of up to 2 years, or both.

Obligations of a PSC

PSCs (or RLEs) must provide:

  • the information set out in any statutory notice received from the company; and
  • the prescribed information, even if such a person has not received a notice, if the person knows, or reasonably ought to know, that he/she is a PSC (or RLE), has been for at least one month, and his/her details are not already disclosed in the PSC Register. A similar obligation arises if there is any subsequent change in such information.

Failure to comply with a statutory notice or to comply with the general obligation to provide information is an offence unless certain conditions are met. Similarly, if any person fails to comply with a statutory notice served on it by a company, then the company may give that person a warning notice that it intends to issue the person with a restrictions notice with respect to its interests in the company. If a restrictions notice is served, any transfer of the restricted interests will be void, no dividends may be paid on such interests, and no rights attached to such interests may be exercised.

Information That Must Be Included in the PSC Register

The following information must be disclosed on the PSC Register where a PSC is an individual: name, service address, usual country or state of residence, nationality, date of birth, usual residential address, date on which such person became a PSC in relation to the company, and the nature of his/her control over the company. 

The PSC Register should also include the following information concerning any RLE: corporate or firm name, address of registered or principal office, legal form of the entity, the law by which the entity is governed, the register of companies (if any) in which it is entered, together with its registered number and the date on which it became a registrable RLE. The intention is that an interested party could then look at disclosures made by such RLE under its own disclosure regime to identify any ultimate PSC. 

The PSC Register will also record the nature of the control exercised by the registrable PSC or RLE by reference to one of the five conditions described above. 

A company’s PSC Register cannot be left blank. A company should disclose in the PSC Register whenever it:

  • has reason to believe that there are PSCs or RLEs, but it has not been able to identify them or confirm their details; 
  • knows or has reasonable cause to believe that there are no PSCs or RLEs; 
  • has not yet completed taking reasonable steps to determine whether there are any PSCs or RLEs; 
  • has served a statutory notice that has not been complied with (or there was late compliance); or 
  • has issued or withdrawn a restrictions notice.

A company must make available its PSC Register for free public inspection to any person or provide a copy on request at a cost of up to £12. The public register at Companies House will be searchable by any person free of charge.

The usual residential address of a PSC will not be publicly available, either on a company’s own register or the register at Companies House. It will, however, be accessible by certain public bodies and (unless a PSC makes a specific application) credit reference agencies. The PSC’s date of birth will be publicly available on a company’s own PSC Register, but not on the register at Companies House (unless the company elects to hold its own PSC Register there). The PSC Regulations also permit PSCs to seek further protection of their personal information from public disclosure, provided that they can satisfy certain tests relating to there being a serious risk of harm. 

Next Steps

Companies and LLPs need to put in place the necessary systems to deal with the new regime as soon as possible and should begin taking reasonable steps to identify PSCs and RLEs and preparing their PSC Register to be ready for 6 April 2016. Similarly, PSCs who wish to limit the information relating to them that will be publicly available on the PSC Register should also begin preparing such applications.