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 UK companies (known as PSCs).  This note is intended to help companies 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 a UK company’s shares or voting rights, or who otherwise exercise significant influence or control over the company 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 company name. Companies will be required to start keeping a register from January 2016 and from April 2016 PSC information will also need to be included in companies’ annual confirmation statements (currently known as annual returns).

The majority of UK companies will need to comply with  the provisions or risk being convicted of a criminal offence. Likewise all shareholders (unless the company is exempt) will need to provide the required information to the company or risk being convicted of a criminal offence. The offence is punishable by a fine, or up to two years imprisonment, or both. There is no defence available to a company, its officers or shareholders for an inadvertent or slight breach of the provisions.

WHO MUST KEEP A REGISTER?

The majority of UK companies, even those with simple shareholding structures, will need to comply with the provisions. Only UK listed companies are broadly exempt as they are already subject to similar disclosure provisions.

HOW ARE PSCS IDENTIFIED?

The company’s obligations

Companies must take reasonable steps to find out if there is anyone who is a PSC and if so, to identify them. Slightly different provisions apply depending upon whether the company is a subsidiary of another UK company or is owned by an overseas company or individuals but, in any event, the company must give notice to anyone whom it knows, or has reasonable cause to believe, to be registrable.

If the company (company A) is a subsidiary of another UK company (company B) it must identify company B as a relevant legal entity (RLE). The test is not whether company A is a subsidiary of company B within the Companies Act 2006 definition. Instead, company B will be a RLE of company A where company B is a UK company and it would have met one of the conditions for being a PSC if it had been an individual i.e. company B owns or controls more than 25 per cent of company A’s shares or voting rights, or company B otherwise exercises significant influence or control over company A or its management. If company A is not a wholly owned subsidiary of a UK company, it must also consider whether it has any other RLEs or any individual PSCs.

The company must give a notice to anyone whom it knows or has reasonable cause to believe to be registrable unless the company has already been informed of the person’s status and been given the requisite information. A company 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.  New companies will be required to deliver a “statement of initial significant control” on incorporation, alongside other registration  documents.

Aside from the requirement to give a notice, it is not yet clear what other reasonable steps the company must take to identify its registrable persons. What is clear, from the drafting of SBEE, is that giving a notice may not of itself be sufficient. What is also clear is that if a company 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 will be liable, on conviction, to a fine, or up to two years imprisonment, or both.

Notice content

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.

PSC / RLE obligations

An individual or relevant legal entity is also under an obligation to identify itself as a PSC or RLE.  It must provide the company 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 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, or up to two years imprisonment, or both.  In addition, if a person fails to comply with the initial notice, the company 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. 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. It is worth noting that the draft regulations propose that where restrictions are lifted, any benefit or right arising during a restricted period cannot subsequently be invoked or enjoyed.

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.

The Government is currently consulting on the form which some of the details must take. It proposes:

  • that the nature of control be recorded on the register by stating which of the tests for being registrable have been met 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). If introduced as proposed, 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 does not have a registrable person or has been unable to verify that person. The company 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 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 has issued a formal request for information from a person, or where it has placed restrictions on shares where a person has not complied with a request for information; and
  • 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 Government has 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, 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 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 before April.

The company 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 of any changes to its status or the prescribed particulars on the register. A company failing to comply with the provisions  for recording information is liable, on conviction, to a fine.

WHERE THE REGISTER MUST BE KEPT?

The register must be kept available for inspection alongside the company’s other registers i.e. at the company’s registered office or at its alternative nominated inspection location. This requirement will however be subject to the option that companies will have from April, 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’s own PSC register must, in any event, be open to inspection free of charge and the company must provide copies of the register on payment of a modest fee. The Government is currently consulting on one of two options for charging for inspection of the company’s register. The consultation advocates a flat fee of £12 for inspection but provides a sliding scale option for consultation of up to £91, plus the company’s reasonable costs, depending on the number of entries.

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 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 not to comply with the request. Failure by the company to respond to requests as required will be an offence and the company and its officers may be fined. Offences may also be committed by those requesting disclosure.

The company 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. 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.

It is not yet clear how all of the provisions will be implemented. Guidance on determining whether an individual is a PSC is not expected to be published until the autumn making it difficult to fully consider SBEE’s impact on group structures. However, 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, an individual who is deemed to exercise significant influence or control. Companies 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 from January 2016 to avoid committing a criminal offence.