Registered companies must keep a Register of People with Significant Control (PSC Register). This requirement was introduced on 6 April 2016 and applies to all UK companies and LLPs including charitable companies, community interest companies and trading subsidiaries of charities. Royal Charter bodies and statutory corporations do not have to prepare a PSC Register, but any subsidiary companies of those entities are subject to the new rules.
This guide is an introduction to the topic and a sign post for universities grappling with the new requirements. Most universities are not companies (but are commonly other types of corporate entity such as Royal Charter body or statutory corporation) and therefore will not require a PSC Register themselves. However, subsidiary companies of universities (whether charitable or commercial) will need to prepare a PSC Register.
The Department for Business Innovation & Skills (BIS) has issued Guidance on the Register of People with Significant Control (the Guidance). Although it (unfortunately) does not contain all the answers, it is a good starting point and it sets out basic information on how to identify people with significant control (PSCs) and prepare the PSC Register.
What is a PSC Register?
It is a new statutory register that all UK companies must keep. The purpose of the register is to list individuals with significant control over the company and/or relevant legal entities (RLEs) with significant control. The new rules aim to increase the transparency of corporate structures and identify those able to exercise, or actually exercising, significant control.
When was this introduced?
On 6 April 2016. After 30 June 2016, when a company completes a confirmation statement (which is replacing the Annual Return made to Companies House from June) it will need to provide PSC information, which will be publically available on the register of companies maintained at Companies House.
Who has 'significant control' under the new rules?
Only individuals can have significant control. There are five tests of 'significant control' and a person has significant control if they meet any one of the following conditions:
- directly or indirectly holds more than 25% of the shares (this test will not apply to companies limited by guarantee and therefore will not be relevant to most charitable companies)
- directly or indirectly holds more than 25% of the member voting rights (note that where shares or rights are held jointly (e.g. trustees of trusts will hold shares jointly) each joint owner is treated as if they hold the total shares or voting rights held by all of them)
- directly or indirectly holds the right to appoint or remove a majority of directors (who will of course be the charity trustees of a charitable company)
- otherwise has the right to exercise, or actually exercises, significant influence or control
- 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 the first four conditions if it were an individual
The first three tests are likely to be relatively straightforward in most cases, given the reliance upon a largely factual analysis.
The fourth and fifth tests of 'significant control'
The fourth and fifth tests are harder to apply given the inherent degree of subjectivity. Statutory Guidance from BIS on the meaning of "Significant Influence or Control" that expands on how BIS interprets the fourth and fifth conditions helpfully provides some parameters in which to make this assessment and lists "excepted roles" where persons holding such roles will not usually be considered to have significant influence or control.
"Excepted roles" in relation to the fourth condition include professional advisers, employees of the company and company directors (including managing directors) and a person dealing with a company under the terms of a third party contractual agreement (e.g. suppliers or customers).
What is a 'relevant legal entity' (RLE)?
The PSC Register should also include details of any RLE.
In most cases, a RLE will be another UK company that keeps its own PSC Register and is the parent entity or directly holds a majority of the voting rights in the company.
What are the duties of the company directors to complete the PSC Register and how is information obtained on PSCs?
Company directors are required to take reasonable steps to identify any PSCs and RLEs.
Following identification of the PSCs (if any), those individuals should be contacted to confirm whether they meet one or more of the tests, and to obtain the information needed to be entered on the PSC Register (and individuals are under an obligation to respond).
Once the PSC information is collected it needs to be added to the PSC Register, which must be filed at Companies House when providing the confirmation statement (after 30 June 2016) and thereafter kept up to date.
An example of the new rules:
Below is a worked example of how the PSC Register applies in a scenario involving a university and a subsidiary entity. Please note that the tests of significant control are fact specific and each company needs to apply the tests in their own circumstances.
A University with a Council of 35 members and established by Royal Charter has a wholly-owned trading subsidiary and the University is the only entity with the right to appoint directors of the subsidiary company
- The University is not an RLE because it is not required to keep a PSC Register itself.
- No individual has control over the University because of the large numbers of individuals on the Council and therefore even 'looking through' the University there is no PSC able to control the subsidiary company
- The directors have considered the other tests and have not identified any person who is a PSC
- The directors fulfil the usual role of company directors and as they hold "excepted roles" are not considered to satisfy the fourth condition.
Having taken reasonable steps to identify PSCs and RLEs, the trustees have identified no PSCs or RLEs in relation to the charity. In accordance with the Guidance, the charity's PSC register should state:
"The company knows or has reasonable cause to believe that there is no registrable person or registrable legal entity in relation to the company."
The nature of these rules makes it difficult to prepare a PSC Register without a detailed review of the Guidance and a thorough analysis of the way control over a company can be and is exercised.
Universities may wish to flag to subsidiary entities the need to prepare a PSC Register and put in place the necessary processes for updating the Register when circumstances change. There may also need to be some thinking at a university-wide level as to how PSCs and RLEs are identified and recorded by entities required to maintain a PSC Register.