From 6 April this year, nearly all UK private companies will be required to identify and record details of persons who have a significant ownership or controlling interest in, or otherwise influence, the company. The persons concerned will also have an obligation to notify the company of their interest and/or influence. Non-compliance will be a criminal offence and those who fail to comply could have restrictions imposed on their shareholdings in the company.

From 30 June 2016, details of the relevant persons will also need to be filed on a public register at Companies House and annually thereafter as part of the Annual Confirmation Statement (which will replace the annual return).

Background

The disclosure requirement forms part of the Small Business, Enterprise and Employment Act 2015 (SBEE) and is intended to increase transparency over company ownership and help combat money laundering, tax evasion and terrorist financing.

The SBEE provided, amongst other things, that UK incorporated companies must establish a register (the PSC Register) of persons (PSCs) who have a “significant controlling interest” in the company. The register must include information on individuals (and “relevant legal entities” (RLEs) – see below) who own or control, directly or indirectly, more than 25% of a company’s shares or voting rights or who otherwise exert influence or control over a company or its management. Similar provisions will apply to LLPs.

An RLE is a company shareholder that either keeps its own PSC register or is otherwise subject to other disclosure requirements in the UK, EEA, Switzerland, Japan, or the USA (eg under the FCA’s Disclosure and Transparency Rules (DTR)). An RLE’s details should be included in the PSC Register if it is the first RLE in the company’s ownership chain (or “registrable” in the SBEE).

The disclosure requirement will not apply to companies listed on the London Stock Exchange or quoted on AIM, as they are already subject to their own disclosure regime under DTR. Equally, other companies with voting shares admitted to trading on a regulated market in an EEA state, Japan, the USA, Israel or Switzerland are also exempt on the basis they are subject to similar disclosure requirements as those set out in DTR.

What do you need to do?

The disclosure requirement will come into force on 6 April. Prior to that date, it would be prudent for companies to begin taking reasonable steps to identify the relevant PSCs and RLEs, and reach out to them for confirmation of their details. Details will then need to be recorded, as prescribed by the rules, in the company’s PSC register. Individuals who think they are affected should also get in touch with the relevant entities.

If your company has a simple ownership, governance and control structure you may be able to identify PSCs, RLEs and other indirect interests fairly painlessly. For more complex circumstances, a more thorough review of  the rules and BIS guidance is recommended and in some cases professional advice will be required.

Identify … how?

  • Review the company’s register of members, articles of association, any shareholder agreements and any other agreements which affect the removal of a majority of the board of directors (an individual will also be a PSC if he/she holds, directly or indirectly, the right to appoint or remove the majority of the board of directors of a company).
  • Consider actual voting patterns (which could suggest shareholders are acting together, in which case their interests will be combined for these purposes) and whether any shareholders are trusts, partnerships or overseas companies.
  • Consider whether there are any individuals who have the right to exercise, or actually do exercise, significant influence or control over the company. To do this, you will  need to consider a variety of factors set  out in the BIS statutory guidance including the specific role of the individual and whether the individual has any absolute veto or decision rights over matters such as: the company’s business plan, the appointment or removal of a CEO, or borrowing from lenders.

Record … what?

Once confirmed, details of a PSC or RLE, including his/her/its name, address,  date of birth, registered number, entry date as a PSC/RLE and reason for entry (as applicable), should be recorded in the PSC Register as soon as reasonably practicable and the register should never be blank.

Key considerations

Although one of the SBEE’s aims is to reduce regulatory burden, in many circumstances, the disclosure requirements are likely to be a thorny and administratively taxing project for our clients. An efficient process for establishing who and which entities are PSCs and RLEs and what to do in the myriad of different scenarios would undoubtedly be valuable. To get you started, we have identified some of the more tricky/ time‑consuming parts of the rules for you to look out for.

  • In addition to PSCs, companies may need to also record RLEs. In most cases, this will be straightforward but will take some time to work through. Where persons hold indirect interests or direct and indirect interests cumulatively, or overseas companies are involved, it can be more complex. See Chapter 2 of the BIS guidance.
  • Care needs to be taken to follow the formulaic process for obtaining and confirming a PSC’s or RLE’s details, particularly where the details are unknown and not forthcoming from the individual/ RLE and in this case, a company will need to consider whether to contact third parties or to impose restrictions on an individual  or RLE’s shareholdings in the company.
  • Keep in mind the distinction between the PSC Register and the Central Register. The information on both registers differs slightly and care should be taken to ensure that certain information is not included on the Central Register or provided on request for inspection. Certain companies will also want to consider whether to apply to suppress a PSC or RLE’s details.