From 6 April 2016, most UK companies became subject to the new transparency obligations set out in Part 21A Companies Act 2006 ("Part 21A"). The aim of these provisions is to ensure that the individual(s) who ultimately own or control a UK incorporated company can be identified, regardless of any complex arrangements (such as trusts or chains of intermediate holding entities) that may be used in attempts to conceal their identity. Companies were exempted from the Part 21A requirements if they were subject to Chapter 5 of the Disclosure Guidance and Transparency Rules, but this exemption is removed with effect from 26 June 2017 by The Information about People with Significant Control (Amendment) Regulations 2017.

Companies exempt from Part 21A

The only UK companies that are now not required to comply with the Part 21A obligations are:

  • those with voting shares admitted to trading on a regulated market in a EEA state; and
  • those with voting shares admitted to trading on specified markets in Switzerland, the USA, Japan and Israel.

Those exempt companies are referred to in this insight as "Regulated Companies". Companies with shares admitted to trading on AIM will therefore no longer be automatically exempt. They have until 24 July to comply with the Part 21A requirements.

My company is not exempt; what must we do?

A company that is subject to the Part 21A obligations must take steps to identify the following:

  • any individual who has "significant influence or control" (whether directly or indirectly) over the company (a "PSC"); and/or;
  • any "relevant legal entity" ("RLE"), that is, any legal entity that:
    • would, if it were an individual, be a PSC; and
    • is "transparent" (as defined below; note that this expression is not used in Part 21A but is used as a shorthand term in this briefing).

An entity is "transparent" if it is:

  • a corporate entity that is itself subject to Part 21A;
  • a Regulated Company (as defined above); or
  • an entity to be specified in secondary legislation.

Having identified any PSCs or RLEs, the company must then determine if they are "registrable". Any registrable PSC or RLE must be identified in the company's PSC register. Any corporate entity in a chain of ownership that is not transparent is ignored for these purposes. Companies must look up their chain of ownership until they identify a PSC or a transparent legal entity.

How can I identify a PSC or RLE?

A person or entity will be required to be listed in the PSC register if the person or entity meets any of conditions 1 to 3 below. If none of those conditions apply, conditions 4 and 5 must be considered.

  • Condition 1 - holding, directly or indirectly, more than 25% of the shares in the company;
  • Condition 2 - holding, directly or indirectly, more than 25% of the voting rights in the company;
  • Condition 3 - holding the right, directly or indirectly, to appoint or remove a majority of the company's directors;
  • Condition 4 - having the right to exercise, or actually exercising, significant influence or control over the company;
  • Condition 5 - having the right to exercise, or actually exercises, significant influence or control over a trust or firm which itself satisfies at least one of the above conditions.

Conditions 4 and 5 are the most difficult of the conditions to interpret with precision. Statutory guidance has been issued on the meaning of "significant influence or control" ("SIOC"), but the guidance is expressly stated to be non-exhaustive.

SIOC rights could arise, for example, from:

  • special rights attaching to shares; or
  • contractual veto or decision rights over the company's activities in key areas such as appointing or removing the CEO, operation of incentive schemes, changes to business or business plans, share issues or changes to the company's constitution (although such rights may be disregarded where they exist to protect a minority shareholding).

For these purposes, the rights need only exist; they need not have been exercised.

A company must also consider if anyone actually exercises SIOC over it, even where they have no legal right to do so. Examples given in the guidance include:

  • someone who is not a director of the company but who is significantly involved in the management and direction of the company, or who regularly influences the decisions reached by a majority of the board (significant influence); or
  • a company founder who has transferred all or most of his shares to family members who continue to vote in accordance with the founder's instructions (control).

The first of the above bullet points could conceivably arise, e.g. where a company in financial difficulty consults its lender on all material board decisions. The guidance states that where a person can ensure that a company generally adopts the activities which the person desires, this would be indicative of "significant influence". Note that "significant influence" and "control" are alternatives; only one needs to exist in order for the relevant condition to be met.

The guidance states that all relationships that a person has with a company, or with other individuals with responsibility for managing the company, must be taken into account in order to determine whether or not the cumulative effect of those relationships gives rise to SIOC.

Information gathering

Companies subject to the PSC regime must take active steps to identify any PSC or RLE and must send notice to anyone it believes to be a PSC or RLE seeking confirmation of the position. Information relating to PSCs may only be entered in the company's PSC register when it has been confirmed as correct by the relevant individual. Any relevant details must be included in the PSC register within 14 days of being obtained (or confirmed in the case of information relating to an individual). Details must also be filed with the Registrar of Companies within a further 14 days.

We definitely have no PSC or RLE; what do we do?

A company's PSC register must never be blank. It must contain all relevant information, or record the steps taken to try to discover relevant details. If there is definitely no PSC or RLE, the register must record this.