The Small Business, Enterprise and Employment Act 2015 (SBEE) materially reforms UK company law. One of the confirmed changes, which is perhaps the most controversial, is the introduction of a central public registry of those individuals who have significant control of English companies and limited liability partnerships (LLPs) (known as PSCs). This note is intended to help companies and LLPs understand their obligations when compiling the register, the tools available to them when identifying the persons whose details must be entered on the register, where the information must be kept and who can access it.
Why is it important?
Broadly, SBEE requires details of those individuals, who:
- ultimately own or control more than 25 per cent of an English company’s shares or voting rights; or
- have the right to share in more than 25 per cent of any surplus assets of an English LLP or who ultimately own or control more than 25 per cent of members’ rights to vote,
or who otherwise exercise significant influence or control over the company, LLP or its management, to be included on a private and a public register (the PSC register).
The Government has confirmed that the public register will be freely available online and searchable by individual name, as well as by corporate entity name. Companies and LLPs will be required to start keeping a register from 6 April 2016 (which must be open for inspection on that date, see ‘Who can inspect the register?’ below) and from 30 June 2016 PSC information will also need to be included in companies’ annual confirmation statements (currently known as annual returns). Although draft legislation requiring LLPs to deliver annual confirmation statements in lieu of annual returns has yet to be published, the Government has confirmed that the provisions will also apply to LLPs.
The majority of companies and LLPs will need to comply with the provisions or risk being convicted of a criminal offence. Likewise all PSCs will need to provide the required information to the company (unless it is exempt) or LLP or risk being convicted of a criminal offence. The offence is punishable by a fine and/or up to two years imprisonment. There is no defence available to a company or LLP, its officers / management or PSCs for an inadvertent or slight breach of the provisions.
Who must keep a register?
The majority of English companies, even those with simple shareholding structures will need to comply with the provisions. Only listed companies are broadly exempt as they are already subject to similar disclosure provisions. All English LLPs must also keep a register.
How are PSCs identified?
The company or LLP’s obligations Companies and LLPs must take reasonable steps to find out if there is anyone who is a PSC and if so, to identify them.
When identifying PSCs, slightly different provisions apply depending upon whether the company or LLP is part of a chain of legal entities or is owned directly by individuals but, in any event, the company or LLP must give notice to anyone whom it knows or has reasonable cause to believe to be registrable.
If the company or LLP (entity A) is part of a chain of legal entities, provided all of the entities would be PSCs if they were an individual, entity A must only identify the company or LLP directly above it (entity B) as a relevant legal entity or ‘RLE’ (not all the other entities in the chain). The test is not whether for example entity A is a subsidiary of its immediate parent, within the Companies Act 2006 definition. Instead, entity B will be a RLE of entity A where entity B would have met one of the conditions for being a PSC if it had been an individual e.g. entity B owns or controls more than 25 per cent of entity A’s shares or voting rights, or entity B otherwise exercises significant influence or control over entity A or its management. Although entity A need not register the other legal entities above B it must still consider whether it has any other registrable RLEs or any individual PSCs. For further details on identifying PSCs, please see our note “PSC Register - Identifying PSCs”.
The company or LLP must give a notice to anyone whom it knows or has reasonable cause to believe to be registrable unless the company or LLP has already been informed of the person’s status as a PSC and been given the requisite information. This means even where an entity knows that someone is a PSC or RLE it will need confirmation from that person. In addition, an individual PSC must also confirm the prescribed details before the information can be entered on the PSC register. A company or LLP may also give a notice to a person if it knows or has reasonable cause to believe that the person either knows the identity of someone that is registrable or, knows the identity of someone likely to have that knowledge.
Aside from the requirement to give a notice, draft non-statutory guidance suggests what other reasonable steps a company or LLP must typically take to identify its registrable persons (e.g. reviewing its constitutional documents and statements of capital). What is clear, from the drafting of SBEE and the draft guidance, is that giving a notice may not of itself be sufficient. What is also clear is that if a company or LLP fails to give a notice, or otherwise to take reasonable steps to investigate or obtain information required for the PSC register, the company and every officer in default, or LLP and designated member in default, will be liable, on conviction, to a fine and/or two years imprisonment.
From 30 June 2016 new companies and LLPs will be required to deliver a ‘statement of initial significant control’ on incorporation, alongside other registration documents.
The notice must require the addressee to state whether or not they are registrable and if so, to confirm or correct any of the particulars included in the notice and, where relevant, provide missing information. For details of the required particulars refer to “What must be recorded on the register?” below.
The notice must state on its face that it should be complied with within one month of its date.
An individual or RLE is also under an obligation to identify itself as a PSC or RLE. It must provide the company or LLP with the relevant details, if it knows, or ought reasonably to know that it is a PSC or RLE, it is not already on the register and it has not received a notice from the company or LLP within one month of becoming one. Failure to comply with that obligation, or recklessly or knowingly making a statement that is false in a material particular is again a criminal offence and may incur a fine and/or up to two years imprisonment. In addition, if a person fails to comply with the initial notice, the company or LLP may, having first sent a warning notice, issue them with a restrictions notice. The restrictions notice will effectively freeze the person’s interest, preventing the person from selling, transferring or receiving any benefit from their interest in the company or LLP. Draft regulations are now available setting out the proposed timing and content of these further notices, what constitutes a valid reason for not complying and the process for lifting restrictions.
What must be recorded on the register?
The details that are required to be recorded on the register are as follows:
(Click here to view table on original document)
The Government has recently issued revised draft regulations, following its response statement published in December 2015, on the form which some of the details must take. The regulations confirm:
- that the nature of control must be recorded on the register by stating which of the tests for being registrable have been met (although if one of the first three conditions are met there will be no requirement to consider if that individual also has significant interest or control) and whether the percentage of shares or voting rights held by the PSC or RLE is within one of three broad bands (more than 25 per cent up to 50 per cent; more than 50 per cent up to 75 per cent; or 75 per cent or more). Maintenance of the register in this regard will be fairly simple, with no requirement to state the precise percentage of control;
- that certain statements be recorded in the register either where the company or LLP does not have a registrable person or has been unable to verify that person. The company or LLP is prohibited under SBEE, from entering an individual’s details on the register until they have all been confirmed (this provision does not apply to other legal entities, only individuals). Likewise the company or LLP must not enter details of any changes to an individual’s entry on the register until they have also been confirmed. Certain presumptions of confirmation exist. A ‘pick list’ of options, for recording on the register, will address variations such as where the company or LLP has issued a formal request for information from a person, or where it has placed restrictions on shares or rights where a person has not complied with a request for information; and
- the details of the “protection regime”, enabling some or all of the information on the PSC register to be withheld. Residential addresses of registrable persons can be withheld from disclosure to credit reference agencies where the person can demonstrate that disclosure would put them at serious risk of violence or intimidation due to the activities of the company. The regulations also set out the possible grounds for a person to apply to Companies House to stop any of their information from appearing on the public register or being disclosed. The protection regime is modelled on the existing regime for the protection of directors’ residential addresses. Guidance from Companies House on the directors’ regime requires written or photographic evidence to support a protection application. Evidential examples, suggested by Companies House, include: documentary evidence of a threat or attack or a police incident number. Also in that guidance, Companies House gives examples of a company’s activities which may mean its directors fall within the protection regime, such as if the company is licensed under the Animal (Scientific Procedures) Act 1986. It is therefore likely that the protection regime will be very restricted in its application. Transitional provisions will enable PSCs to apply for this protection from 6 April.
The company or LLP must also keep the information recorded on the register current. If it knows, or has reasonable cause to believe that a relevant change has occurred, it must give a notice to the PSC/RLE as soon as reasonably practicable, unless it has already been informed of the change. The PSC/RLE is also obliged to keep the information current and must notify the company or LLP of any changes to its status or the prescribed particulars on the register. A company or LLP failing to comply with the provisions for recording information is liable, on conviction, to a fine.
Where must the register be kept?
The register must be kept available for inspection alongside the company or LLP’s other registers i.e. at the registered office or at its alternative nominated inspection location. This requirement will however be subject to the option that companies and LLPs will have from June, to elect to maintain certain registers at Companies House. In addition to keeping a “private” PSC register the information must also be filed with Companies House annually as part of the new annual confirmation statement. Implementation of the EU’s Fourth Money Laundering Directive in 2017 will require this annual public statement to be replaced with an obligation to keep the public register up-to-date.
Who can inspect the register?
The company or LLP’s own PSC register must, in any event, from 6 April 2016 be open to inspection free of charge and the company or LLP must provide copies of the register on payment of a flat fee of £12.
The provisions governing inspection of the register largely reflect the current structure for accessing copies of the members’ register. The person wishing to inspect or obtain copies of the register must provide their name and address and the purpose for which the information is to be used. The company or LLP must, within five days of receiving a request, either comply with it or apply to court. If the court is satisfied that the inspection or copy is not for a proper purpose it must direct the company or LLP not to comply with the request. Draft guidance states that in this context “proper purpose” is “intended to have a wide interpretation and application. The purpose of the PSC register is to provide transparency of company ownership and control and your company’s register is intended to be accessible to that end”. Failure by the company or LLP to respond to requests as required will be an offence and the company and its officers and LLP or its designated members may be fined.
The company or LLP must confirm, to those inspecting the register, whether the details on the register are current or subject to amendment.
What happens next?
The Government has committed to preparing detailed guidance to help companies and their shareholders to understand their obligations, a draft of which is now available. Companies House are also working with users to make the process for giving information to them via the Companies House website as straightforward as possible. Now timing of implementation of the provisions has been confirmed, including their application to LLPs, those entities within scope and their members may wish to start considering whether they have, or are, a person who is deemed to exercise significant control. Companies and LLPs would also be advised to start considering the procedures that will need to be implemented to ensure they take reasonable steps to identify their PSCs and RLEs, and maintain a PSC Register from 6 April 2016, to avoid committing a criminal offence.