US-domiciled PE / VC funds often invest in European companies. Most fund managers know that, if they’re subject to the AIFMD, they might have to tell the European regulator(s) about these investments. It’s less well known that, if the investee company is, or the investee company’s group includes a company that is, registered in the UK, that company might have to include some information about the fund, the fund manager, and the fund’s investors, in a publicly available People with Significant Control (PSC) Register (Register) as well.
In 2013, the members of the G8 agreed to implement some new corporate transparency measures in their jurisdictions. The UK did this by adding a new Part 21A, “Information about People with Significant Control”, to the Companies Act 2006.
The law in brief:
The new law applies to UK-incorporated companies limited by shares or guarantee, unlimited companies, Societates Europaeae and LLPs (each, a Company).
Every Company must maintain a Register, which includes prescribed information about every “registerable individual” and “registerable relevant legal entity” that has “significant control” over the Company. The Register must be kept at the Company’s registered office, where anyone can ask for access to it. The Company must also include information from its Register in an annual Compliance Statement, and that must be filed at Companies House, where law enforcement and credit reference agencies can access it.
- A “registerable individual” is an individual who has “significant control” over the Company, unless that control is through a “registerable relevant legal entity”;
- A “registerable relevant legal entity” is the first legal entity in the chain of legal entities above the Company (if any, and working up the chain), that has “significant control” over the Company, that is also: (a) a Company; or (b) listed on a relevant exchange in the European Economic Area, Israel, Japan, Switzerland or the United States (a Relevant Exchange);
- A person has “significant control” if he:
- Directly or indirectly holds:
- more than 25% of the Company’s shares, when every issued share is taken into account, and the percentage is calculated using their nominal or par value; or
- more than 25% of the voting rights in the Company – special rules apply if (for example) a share class has more than one vote attached, or the votes can only be cast in some circumstances; or
- the right to appoint or remove directors with a majority of the board level voting rights on all, or substantially all, matters; or
- Has the right to exercise, or actually exercises, “significant influence or control” over the Company – statutory guidance explains what “significant influence or control” over a company or LLP means; or
- Has the right to exercise, or actually exercises, significant influence or control over the activities of a trust or firm, or the trustees of a trust or the members of a firm, that is not a legal person under the law by which it is governed, but holds one or more of the other types of control described above, or would do so if it was an individual.
- Directly or indirectly holds:
How does this affect US domiciled PE / VC funds, fund managers, and fund investors?
The UK’s PSC Register requirements might affect a US-domiciled PE / VC fund, the fund’s manager, and/or the fund’s investors in two ways – a Company:
- Is required to take reasonable steps to identify every “registerable individual” and “registerable relevant legal entity” that has “significant control” over that Company. This might include serving an Information Request Notice (IRN) on any person (a) the Company has reasonable cause to believe knows the identity of its PSCs; or (b) who could reasonably be expected to know someone who’s likely to have that knowledge. A fund, the fund’s manager, and the fund’s investors may receive an IRN. If they do, and they fail to respond appropriately, they may commit an offence. Restrictions may also be imposed on their Company shares and voting rights (if any);
- May be obliged to include some information about the fund, fund manager and fund investors in its Register, although this will be rare in practice. For example, the Company will only have to include:
- A US-domiciled fund, or the fund’s US-domiciled GP, in the Company’s Register if the fund or GP (as the case may be) (i) has “significant control” over the Company; and (ii) it is listed on a relevant exchange;
- A member of the GP in the Company’s Register, if the GP has not been included in the Register (because the tests immediately above are not met); and then only if that member is (i) an individual with “significant control” over the Company; or (ii) a body corporate that is a Company, or listed on a relevant exchange;
- A fund investor in the Company’s Register if, unusually, he or it has “significant control” over the Company, when “control” is much more likely to rest with the GP instead.
Where can I get more information?
The UK government has published guidance and other materials on the new regime; and they are available here (see “The Register of People with Significant Control”). Our related Client Alert is available here.