On 26 March 2015 the Small Business, Enterprise and Employment Act 2015 (the Act) received Royal Assent. The Act covers a diverse range of topics. Certain key sections implement a series of reforms of the UK's company law aimed at improving the transparency and accountability of UK–incorporated companies.

We have discussed many of these changes (such as the abolition of bearer shares and the use of corporate directors) in previous updates. This update focuses on the guidance1 recently published by The Department for Business, Innovation & Skills (BIS) relating to the creation of a Register of Persons with Significant Control (a PSC Register), a requirement for UK companies from 6 April 2016.

Application

The new rules apply to all UK–incorporated companies and limited liability partnerships. They do not apply to companies that are subject to chapter 5 of the Financial Conduct Authority's Disclosure & Transparency Rules (which includes UK companies on AIM or the ISDX Growth Market) or companies with voting shares admitted to trading on a regulated market in the UK, the EEA or specified markets in Switzerland, the U.S., Japan and Israel2 (Excluded Companies).

The PSC Conditions

An individual will be classed as a person of significant control (a PSC), and a company will be classed as a relevant legal entity (RLE), of a UK company if it meets any of the following conditions:

  • (i) directly or indirectly holds more than 25 percent of the company's shares;
  • (ii) directly or indirectly holds more than 25 percent of the company's voting rights;
  • (iii) directly or indirectly holds the right to appoint or remove a majority of the company's directors;
  • (iv) otherwise has the right to exercise, or actually exercises, significant influence or control over the company; or
  • (v) has the right to exercise, or actually exercises, significant influence or control over the activities of a trust or firm which is not a legal entity, but would itself satisfy any of conditions (i) through (iv) above if it were an individual.

Who Must Be Included in the PSC Register?

In practice many companies have both individuals and other companies as shareholders, and so may have both PSCs and RLEs. The rules relating to PSCs and RLEs must therefore be looked at together. In summary, the rules require that:

  • (i) if an individual meets any of the PSC conditions noted above in respect of a UK company, then that individual must be recorded in the company's PSC Register as a PSC;
  • (ii) if a UK company or an Excluded Company meets any of the PSC conditions noted above in respect of a UK company, then that UK company or Excluded Company must be recorded in the company's PSC Register as a registerable RLE;
  • (iii) if a foreign company that is not an Excluded Company meets any of the PSC conditions noted above in respect of a UK company, then it is necessary to investigate the ownership structure above that foreign company (including looking through any nominee/trust arrangements) to identify whether there is any individual, UK company or Excluded Company that would be considered to indirectly meet the relevant PSC condition (and if there is, then that individual or company must be recorded accordingly).

A foreign company will not usually be a registerable RLE unless it is an Excluded Company. Once a PSC/registerable RLE has been identified, it is not necessary to look at the corporate structure above that PSC/registerable RLE. For example, where a company is owned by a chain of UK companies then only the immediate parent needs to be recorded.

What Information Is Required?

Individuals who are required to be recorded as PSCs in a company's PSC Register must provide to the company their:

  • full name
  • date of birth
  • nationality
  • country of residence
  • service address
  • usual residential address
  • date of becoming a PSC
  • details of the PSC conditions that apply

RLEs that are required to be recorded as such in a company's PSC Register must provide to the company their:

  • full legal name
  • registered office address
  • legal form and law by which it is governed
  • details of the register in which it is registered and its registration number
  • date of becoming a registerable RLE in respect of that company
  • details of the PSC conditions that apply

Much of this information will, in addition to being entered in the relevant company's PSC register, be required to be registered by the relevant company with the UK's Registrar of Companies (Companies House). As a result it will be a matter of public record.

Completion of the PSC Register

Once a company has identified its PSCs and registerable RLEs, then it must obtain the information noted above for inclusion in the PSC Register. If a company has no PSCs or registerable RLEs, then this fact must be recorded in the PSC Register—the PSC Register cannot be left blank. If the company has not received the necessary information to complete the PSC Register before 6 April 2016, then the company must still create a PSC Register and must note this fact in the register.

The PSC Register will effectively take the form of a series of statements as to the current PSCs and registerable RLEs of the company, with dates indicating when a particular statement became relevant and when it ceased to be relevant. When a statement ceases to be relevant it should not be deleted from the register.

The company is not completely free to use any language that it wants in the PSC Register. The BIS guidance sets out various official statements that a company must use to describe its current circumstances. For example:

  • (i) when a company has no PSCs or registerable RLEs then the following wording must be used in the PSC Register: 'The company knows or has reasonable cause to believe that there is no registerable person or registerable relevant legal entity in relation to the company.'; and
  • (ii) when a company has identified a PSC but is awaiting the necessary information for inclusion in the PSC Register then the PSC Register must state: 'The company has identified a registerable person in relation to the company but all of the required particulars of that person have not been confirmed.'

The BIS guidance sets out official statements that must be used to describe the PSC conditions that are triggered by a particular PSC or registerable RLE. It also sets out the form of various notices that a company may be required to serve in connection with a PSC Register, such as a notice served on a person thought to be a PSC asking for confirmation of that person's interest.

Failure to Comply

The obligation to disclose the information is placed both on the company and on the PSCs and RLEs:

  • (i) A UK company is required to take reasonable steps to discover the relevant information for inclusion in a PSC register and to give notice demanding information to any person who may reasonably be a PSC. The UK company’s directors may be liable to fines and imprisonment for failing to discharge this duty.
  • (ii) PSCs and RLEs are required to comply with any notice for information served on them by the company. If they fail to do so, then the UK company may follow a procedure to suspend the rights attaching to the shares controlled by the suspected PSC/RLE and to prevent their transfer. While this procedure is optional, the UK company’s directors may feel obliged to follow this procedure or face their own sanctions noted above.

Practical Considerations

The information being sought on PSCs and RLEs is not new—all EU banks and professional firms have been required to gather similar information on their clients for some time to comply with anti-money laundering regulations. However, the fact that this information will be publicly available is a significant change in approach. While the UK is taking the lead in implementing these changes, the rules will ultimately be implemented across the EU.

UK private companies and LLPs will soon be able to choose to treat their records at Companies House as their official corporate registers. However, by doing so certain information relating to PSCs which would otherwise be private (such as the PSC's residential address and full date of birth) will become publicly available. Where this information is sensitive it is recommended that companies continue to maintain separate corporate registers and do not combine these with the Companies House records.

All organisations which have a UK company or LLP within their group structure will now need to ensure that the relevant UK company or LLP maintains a PSC Register from 6 April 2016, actively takes steps to ascertain the information of any PSC or registerable RLE that may need to be included, and files the information with Companies House when required.

Where a company engages the services of a professional company secretary, then such secretary should already be aware of the various changes being made. Through VP Secretarial Limited, which provides bespoke company secretarial and compliance services, Vedder Price can incorporate UK companies, act as registered office and company secretary, provide an address for the services of process in the UK, and maintain client UK companies in good standing.