Less than three months now remain until the implementation of new regulations which will require disclosure of people who exert significant influence over companies and limited liability partnerships (LLPs) in the UK.

Draft statutory guidance on the obligation to maintain a register of persons with significant control (PSC) has now been published. Failure to comply with the new regulations can result in criminal offences and penalties.

The published draft guidance appears deliberately wide-ranging and broadly-drafted so as to thwart efforts to mask the right to - or actual exercise of - significant influence or control.

PSC registers may potentially record shadow and de facto directors of private companies publicly for the first time. They could also include former shareholders who still provide input and guidance after their exit and any other 'grey eminences', influencing or controlling the company.

This may be of concern for some companies for whom public knowledge that certain persons have influence or control over the company is commercially sensitive, as well as companies who previously sought to keep these elements of shareholder or investor agreements private.

However, with a commitment by the Department of Business, Innovation and Skills and the European Union towards business transparency, measures are inevitable and irreversible and companies will need to adjust to the new landscape.

For many companies, identifying PSCs and keeping the PSC register will be a very straightforward process and won't add any significant corporate governance burden. However, the secretaries and directors of some companies may not even be aware of the new PSC register regime and must familiarise themselves as soon as they can.

As penalties for failure by a company to discharge its obligations fall on the company and every officer in default, it is incumbent on the secretary and directors of every company to do their bit to comply with the PSC register regime, even if this would ordinarily fall within a specific officer's remit.

Each company will need to look at their own circumstances and take the time to consider carefully whether the various people in a relationship with the company constitute registrable persons (see below).

On the other side of the equation, people in a relationship with a company also need to consider whether they should submit their particulars to the company or companies as a person with significant influence or control. It is their duty to volunteer and update this information.

A thorough understanding of what is meant by 'significant influence or control' will also be required on both sides.

The new legislation will apply to all UK companies unless they are already subject to chapter 5 of the Financial Conduct Authority's Disclosure and Transparency Rules or are listed on a regulated market in the UK, in an EEA state or certain specified markets in Switzerland, the USA, Japan or Israel.

On 6 April, therefore, all non-exempt companies must have a PSC register, and it must not be empty, even if there are no PSCs or the investigation process is still underway. Instead, pro forma wording must be used as appropriate, details of which are set out in separate draft guidance.

Companies should start acting now to identify or investigate PSCs and prepare their internal books and procedures ready for compliance on 6 April.

For a brief overview of what a PSC register is, please see our previous update on this topic.

The draft guidance

As well as requiring:

  • companies to identify persons holding shares or voting rights in excess of 25% and persons who have the ability to appoint or remove a majority of the board of directors; and
  • LLPs to identify persons holding the right to more than 25% of the assets on a winding up, more than 25% of the voting rights or holding the right to appoint or remove a majority of management;

companies and LLPs will have to identify those persons who have the right to exercise, or actually exercise, 'significant influence or control'.

The long-awaited draft statutory guidance on the meaning of a person with significant influence or control is available from the ICSA website.

There is separate draft guidance for companies and LLPs. This article focuses on the draft guidance as it applies to companies. Equivalent guidance is set out in respect of trusts.

The meaning of significant influence or control

The draft guidance sets out that:

  • 'Control' means the power to direct the policies and activities of a company
  • 'Significant influence' means that a person can ensure that the company adopts those policies or activities which are desired by the holder of the significant influence

Significant influence or control can go beyond the financial and operating policies of the company and does not have to be exercised by a person just for his or her economic gain.

It also covers the direct or indirect right to exercise actual significant influence or control, whether that right is created through provision in a company's articles, shareholders' or investor agreement, share rights or otherwise. It is important to note that a person holding such a right must be entered on the PSC register irrespective of whether the right has or will be exercised.

Examples

The draft guidance provides non-exhaustive examples of rights to, or actual exercise of, significant influence or control. These include a person:

  • having absolute decision rights or veto rights over decisions related to the running of the business of the company (but not where these derive solely from being a prospective vendor or purchaser in relation to the company, for a temporary period of time, or for the purpose of protecting minority interests such as in respect of constitutional or share capital changes, additional borrowing or winding up the company)
  • having absolute veto rights over the appointment of the majority of directors
  • being involved in the day to day management and direction of the company where they are not a member of the board (or even a shareholder)
  • whose recommendations are always or almost always followed by shareholders which hold the majority of the voting rights in the company, when they are deciding how to vote

Safe harbours

The draft guidance goes on to identify 'safe harbours' (roles and relationships which usually mean a person won't be exercising significant influence or control). These include directors and employees acting within capacity, together with the usual third party, statutory, regulatory and advisory parties (suppliers, lenders, regulators, liquidators, lawyers and accountants etc), as well as a person who makes recommendations to shareholders on a one-off issue that is then voted on.

However, the draft guidance warns that a person may still be regarded as a person exercising significant influence or control if the 'safe harbour' role or relationship differs in material respects or is actually different from how the role or relationship is generally understood, or if it forms one of several opportunities which that person has to exercise significant influence or control. This appears intended to capture people who use their ostensible relationship with a company as a veil to mask their influence or control over the company.

One example of this is set out elsewhere in the draft guidance: that of a director who also owns important assets or has key relationships that are important to the running of the business (eg intellectual property rights), and uses this additional power to influence the outcome of decisions related to the running of the business of the company. Despite being a director and ostensibly a 'safe harbour', the nature of their relationship to the company means that he or she will need to be entered into the PSC register.

Act now

In terms of complying with the new regulations, our Corporate and Company Secretarial teams are of course happy to help in any way we can.