Background

In 2014, the Department for Business, Innovation and Skills (BIS) concluded a consultation on "Transparency and Trust: Enhancing the transparency of UK company ownership and increasing trust in UK business". One of the key policies adopted following the consultation was the creation of a publicly accessible central registry of UK company beneficial ownership information, and a requirement on UK companies, limited liability partnerships under the Limited Liability Partnership Act 2000 (LLPs) and Societates Europaeae (SEs) to maintain a register of significant beneficial ownership, which is to be filed at Companies House. The intent is to identify ultimate beneficial owners of companies and such entities, terminology which reflects disclosure obligations aimed at policing money laundering rules.

From 6 April 2016, amendments to the Companies Act 2006 (CA 2006), set out in the Small Business, Enterprise and Employment Act 2015, and the Register of People with Significant Control Regulations 2016, European Public Limited-Liability Company (Register of People with Significant Control) Regulations 2016 and the Limited Liability Partnerships (Register of People with Significant Control) Regulations 2016 (the Regulations), will require certain companies, SEs and LLPs to create and maintain a register (PSC Register) of persons with "significant control" (PSC) over the company or partnership and to make that register public.

This Advisory answers a series of questions designed to guide you through the applicable PSC Register rules and assist you to prepare a PSC Register for your company/LLP.

The requirements applicable to companies, save as noted below, should generally be read as applying to SEs and LLPs, even though for simplicity the below text mainly refers to companies.

Who must have a PSC Register?

1.  A company that is formed and registered under the UK Companies Acts, unless that company is also a "DTR5 Issuer" or it has voting securities admitted to trading on certain other markets. For this purpose, a DTR5 Issuer is a company whose Home State for regulatory purposes is the UK and whose securities are admitted to trading on any European Economic Area regulated market. Such an issuer will be subject to Chapter 5 of the Financial Conduct Authority's (FCA) Disclosure and Transparency Rules, and is therefore already subject to disclosure obligations as to its significant shareholders. The relevant other markets for the above are any of the Israeli, Japanese, Swiss or US markets specified in Schedule 1 to the PSC Regulations for companies.

2. An LLP and a SE.

Who is a PSC?

3. For those companies that need to maintain a PSC Register, the relevant person(s) to be registered will be an individual that meets any of the following conditions:

Condition 1: either alone or with others, holds directly or indirectly more than 25% by nominal value of the company's shares, or the right to more than 25%of the company's capital or profits; or

Condition 2: either alone or with others, holds directly or indirectly more than 25% of the voting rights of the company; or

Condition 3: either alone or with others, holds directly or indirectly the right to appoint or remove a majority of the board of directors of the company; or

Condition 4: has the right to or actually exercises "significant influence or control" over the company; or

Condition 5: has significant influence or control over the trustees of a trust or members of a firm, where that trust or firm is not a separate legal entity and where the trustees/members of that trust or firm fall within Conditions 1 through 4 above (or would so fall if they were individuals).

For an LLP, Condition 1 refers to rights over surplus assets on a winding up, and Condition 3 refers to rights to appoint/remove the majority of those in management.

Must anyone besides a PSC appear in the PSC Register?

4. Yes, subject to paragraph 5 below, a "relevant legal entity" (RLE) may also need to be identified in a PSC Register in addition to any PSCs (who by definition are individuals). An RLE for this purpose is a legal entity (a body corporate, or a firm which under its governing law has separate legal personality) that would be a PSC were it an individual, and is:

4.1 a UK Companies Act company; or

4.2 a DTR5 Issuer (see 1 above); or

4.3 a legal entity otherwise subject to an equivalent disclosure regime as a result of being listed on a stock exchange specified in the Regulations(including the NYSE and NASDAQ).

Are all PSCs and RLEs registerable in the PSC Register?

5. No. A distinction is drawn between registerable, and non-registerable, individuals and RLEs. An individual or RLE is not registerable if they hold their interests or rights only through other RLEs over each of which they have significant control (i.e., the registerable individual or entity is that which is lowest in a controlled structure chain above the company/LLP in question). The aim is to avoid duplicative layers of disclosure obligations.

How do I go about working out who are the registerable individuals and registerable relevant legal entities for my company?

6. Look at each immediate member of your company and ask:

6.1 Is the member an individual with significant control (i.e., satisfying one or more of the Conditions 1 through 5 outlined in paragraph 3 above)? If yes, the individual is a registerable PSC.

6.2 Is the member:

6.2.1 a trust or entity (whether incorporated or unincorporated) without separate legal personality;

6.2.2 does an individual have significant influence or control over the trustees of that trust or members of that entity (i.e., in accordance with Condition 5);and

6.2.3 would that trust or firm fall in one or more of the conditions outlined in 3 above (or would they if it were an individual)? If yes, the individual referred to in paragraph 6.2.2 is a registerable PSC.

6.3 Is the member a body corporate/firm with separate legal personality which is also an RLE? If yes, the entity is registerable and you need not look above that member. If no (i.e., it is a body corporate/firm with separate legal personality but is not also an RLE), then repeat the questions at paragraphs 6.1, 6.2 and 6.3 in respect of its members, up the chain above it, and so on.

What is the meaning of "significant influence or control"?

7. In January 2016, BIS published Statutory Guidance on the meaning of "significant influence or control" for the purposes of Conditions 4 and 5 above for companies, SEs and LLPs. The Statutory Guidance is due to have effect from 6 April 2016. The Statutory Guidance is not drafted to be an exhaustive list of what constitutes "significant influence or control", but it does set out certain indicative principles for a company (see paragraph 11 below regarding an LLP):

7.1 where a person can direct the activities of a company, trust or firm, this is considered to be an indicator of "control";

7.2 where a person can ensure that a company, trust or firm generally carries on the activities they prefer, this is considered to be an indicator of "significant influence";

7.3 a finding of "control" or "significant influence" does not require that the relevant PSC is gaining or looking to gain an economic benefit; and

7.4 a person with rights amounting to "control" or "significant influence" will satisfy the test for "significant influence or control" even where they do not exercise those rights.

8. The Statutory Guidance also sets out some illustrative examples of what might constitute a right to exercise or the actual exercise of "significant influence or control" over a company, including:

8.1 where a person has absolute (i.e., without reference to or collaboration with anyone else) decision rights or veto rights related to the running of the business of the company (including setting the business plan, changing the nature of the business, borrowing from lenders, appointing or removing senior management,establishing or amending any incentive arrangements);

8.2 where a person holds veto rights over the appointment of a majority of directors to the board of the company;

8.3 where a person owns key assets important to the running of the business (such as intellectual property rights) and uses this additional power to influence the outcome of decisions;

8.4 where a person, who is not a director of the company, directly or indirectly influences a significant section of the board or is regularly consulted on board decisions (e.g., a "shadow" director); or

8.5 where a person makes recommendations to the shareholders of the company that the shareholders always or almost always follow.

9. In addition to those examples, the guidance also clarifies that certain rights (by themselves) will not fall within the meaning of "significant influence or control" over a company, including:

9.1 where a person has decision rights or veto rights to protect its minority interests in the company;

9.2 where a person has decision rights or veto rights solely on a temporary basis as a result of it being a prospective purchaser of the company;

9.3 where a person acts solely as a professional adviser to the company (e.g., lawyer, accountant) or acts as a regulator, liquidator or receiver to the company;

9.4 where the person deals with the company under a third-party commercial agreement (including as a supplier, customer or lender); or

9.5 where the person is an employee acting in the course of employment, including as a third party such as a corporate director, who has significant influence or control.

10. The guidance also provides clarification for trusts and firms of what does or does not amount to "significant influence or control" of a company under Condition 5:

10.1 a person will have "significant influence or control" where that person can direct or influence the running of the trust or firm, such as the right to appoint or remove any of the trustees/partners, the right to direct the distribution of funds or assets, the right to direct investment decisions and the right to vary the terms of or terminate the trust or partnership;

10.2 the guidance has also specified that settlors or beneficiaries of a trust that are actively involved in directing the activities of a trust will have "significant influence or control";

10.3 however, a person will not have "significant influence or control" where it performs certain excepted roles and does not otherwise satisfy any of Conditions 1 through 4. These include where a person acts solely as a professional advisor to the trust or firm (as in paragraph 9.3 above), where a person deals with the trust or firm under a third-party commercial agreement (as in paragraph 9.4 above) and where a person is an employee of the trust or firm (as in paragraph 9.5 above).

11. The Statutory Guidance in respect of LLPs applies the same principles as described above, with illustrative examples, to guide on the meaning of "significant influence or control" in the context of an LLP. For example, the equivalent for an LLP of paragraph 8.1 above is where a person has absolute decision rights or veto rights related to the running of the business of the LLP (including amending the LLP agreement, setting the business plan, changing the nature of the business,borrowing from lenders, or establishing or amending any incentive arrangements).

What information must be in a PSC Register?

12. "Required particulars" must be included for each registerable PSC and RLE:

12.1 For an individual: name, service address, country/state of usual residence, nationality, date of birth and usual residential address. The usual residential address will be protected information (unless it is also given as the service address), and so will be omitted from the Companies House central register and from information made available by the company for inspection. It will be available to specified public authorities and credit reference agencies(CRAs).

12.2 For RLEs: corporate/firm name, registered/principal office, legal form and governing law, applicable company register and number (if any).

12.3 In all cases, the applicable Conditions 1 through 5 which have been satisfied must be specified (in accordance with the statements set out in the Regulations), as must the date that PSC or RLE became registerable.

13. In all cases, the applicable Conditions 1 through 5 which have been satisfied must be specified (in accordance with the statements set out in the Regulations),as must the date that PSC or RLE became registerable.

14. In certain cases, a PSC will be able to apply to Companies House for some or all of their information to be withheld from the public register and CRAs. The scope of this protection regime in the Regulations is equivalent to the protection regime under the CA 2006 (as outlined by the Companies (Disclosure of Address) Regulations 2009). The activities of the company in question need not be sensitive, but the applicant's association with the company must create a serious risk of violence or intimidation, to either the PSC or someone they reside with. Applications must be supported by evidence and will be assessed by the registrar of companies on a case-by-case basis.

15. If a company has no registerable persons with significant control or relevant legal entities, that must be stated in the register. If it has reason to believe such do exist, but it has not been able to identify or confirm them, likewise that must be stated. No individual's details must be included if they have not been "confirmed" (i.e., provided or confirmed by the person concerned or with that person's knowledge).

Where must a PSC Register be kept and who can access it?

16. A company must, subject to paragraph 17 below, maintain its PSC Register as one of its "statutory registers", like those of directors and members, and must keep it available for public inspection at its registered office.

17. A private company may elect instead for its PSC Register to be kept only on the public register at Companies House.

When must I have a PSC Register and how often must I update it?

18. From June 2016 a "statement of initial significant control" must be filed at Companies House when applying to register a new company. A company already registered at Companies House must have a PSC Register from 6 April 2016, and from 30 June 2016 must send the PSC Register information annually to Companies House with its "confirmation statement" (which replaces its "annual return").

19. A company which is subject to the PSC Register rules must:

19.1 take reasonable steps to find out any registerable PSC or RLE in relation to it;

19.2 notify any such persons or entities to supply or confirm information;

19.3 notify others it believes have relevant information to supply or confirm; and

19.4 notify registerable persons or entities if it believes they have ceased to be such or their registerable particulars have changed.

Its obligations to investigate, collect and update information are set out in the amendments to CA 2006. If the company becomes aware of a relevant change, it must update its register (subject in the case of information concerning an individual, to the "confirmation" referred to in paragraph 18.2 above).

PSCs should note that, besides responding to notices from the company, you are also obliged to notify the company when you know you are a PSC but have not received a notice.

What sanctions are there?

20. Under the amended CA 2006, registerable PSCs and RLEs themselves have proactive disclosure obligations; if those are triggered, that PSC or RLE must notify the company within one month.

21. A company may apply sanctions to a person or entity which fails to comply with a notice described at paragraph 19 above or which fails in its duties outlined at paragraph 20 above, subject to certain safeguards. The sanctions are: purported transfers of the relevant interests will be void, rights attaching to those interests may not be exercised and sums due on those interests will not be paid other than in a liquidation.

22. Various offences may also be committed by the company, its directors and others for a breach of the PSC regime. These include:

22.1.1 the company and officers in default commit a criminal offence by failure to comply with obligations to investigate, etc.; and

22.1.2 a person commits a criminal offence if it fails to respond to a proper notice from the company, or knowingly or recklessly makes a false statement.

Where do I find the PSC Register rules?

23. New Part 21A CA 2006 (information about people with significant control); new Schedule 1A CA 2006 (references to people with significant control over a company); new Schedule 1B CA 2006 (enforcement of disclosure requirements) – all inserted by Section 81 and Schedule 3 of the Small Business, Enterprise and Employment Act 2015.

24. The Register of People with Significant Control Regulations 2016 (for companies) and the Limited Liability Partnerships (Register of People with Significant Control) Regulations 2016.

Statutory and non-statutory guidance to support implementation of the PSC Register, including as to what is meant by "significant influence and control" has been published by BIS and is available from the Companies House website at: https://www.gov.uk/government/publications/guidance-to-the-people-with-significant-control-requirements-for-companies-and-limited-liability-partnerships.