The People with Significant Control Regime
The Small Business, Enterprise and Employment Act 2015 inserted new provisions (a new Part 21A) into the UK Companies Act 2006 (the ‘CA 2006’) relating to gathering and recording information about people with significant control (each, a ‘PSC’) of UK companies. Those provisions are due to come into substantive effect on 6 April 2016, following the imminent coming into force of The Register of People with Significant Control Regulations 2016. At the same time, The Limited Liability Partnerships (Register of People with Significant Control) Regulations 2016 will apply the same regime to UK limited liability partnerships (‘LLPs’).1
UK public companies are already subject to a regime under Part 22 of the CA 2006 under which information about persons interested in their shares is gathered and made available.2 The new people with significant control regime (the ‘PSC Regime’) will mean that, for the first time, UK private companies and LLPs will need to identify their registrable PSCs. Listed companies that are subject to the DTR regime3 are excluded from the scope of the PSC Regime.4
The PSC Regime is not restricted to individuals who are associated with the United Kingdom (e.g. nationality, residency or otherwise). As a matter of law, the PSC Regime applies to any individual that holds an interest giving it significant control (see below) over a relevant UK company or LLP. Foreign individuals may be subject to the disclosure requirements (as set out below) under the PSC Regime.
The purpose of the PSC Regime is to increase the transparency of corporate ownership and to assist combating money laundering, tax evasion and terrorist financing.
How the PSC Regime Works
The PSC Regime ultimately requires disclosure of the interests in relevant UK companies or LLPs held by persons having ‘significant control’. A person will be deemed to have significant control if one or more of the following five conditions are satisfied:
- It holds, directly or indirectly, more than 25 per cent of the shares in a relevant company or the right to share in more than 25 per cent of any surplus assets of a relevant LLP on a winding up;
- It holds, directly or indirectly, more than 25 per cent of the votes in a relevant company or LLP;
- It holds the right, directly or indirectly, to either appoint or remove a majority of the board of a relevant company or the majority of the persons entitled to take part in the management of a relevant LLP;
- It has the right to exercise, or actually exercises, significant influence or control5 over a relevant company or LLP; and/or
- It has the right to exercise, or actually exercises, significant influence or control over a trust or other similar entity (not being a ‘legal person’) which itself meets any of conditions 1 through 4 above.
For these purposes, ‘indirectly’ means through a chain of majority stakes, which means holding a majority of the voting rights (or controlling them through an agreement with other members), having the right to appoint or remove the majority of board members, or having the right to exercise, or actually exercising, dominant influence or control.
Accordingly, investors in most fund products will not need to be registered. As regards fund entities themselves, if they are (as is common) established outside of the United Kingdom, they will not ordinarily be registrable themselves.6
The PSC Register
The PSC Regime requires the disclosure of:
- If an individual: the PSC’s name, address (business and residential), nationality and date of birth, or if not an individual: the PSC’s name, principal office, legal form and governing law;
- The date the PSC became registrable (i.e. when it became a PSC for the relevant company or LLP);
- The nature of the control it holds (and whether, for conditions 1 and 2 or condition 5, where it applies by reference to conditions 1 or 2) is above 25 per cent but not more than 50 per cent, more than 50 per cent but less than 75 per cent or 75 per cent or more; and
- Whether any of the particulars provided are protected (see below for further details regarding protection of particulars).
Subject as noted below, this information is recorded by the relevant company or LLP on a register (the ‘PSC Register’), which is publicly available for inspection. Any person can view the PSC register for free at the registered office or SAIL (single alternative inspection location) of the relevant company or LLP or ask for a copy of the PSC Register for a fee of £12. The PSC Register must be kept at the registered office or SAIL of the relevant company or LLP. From 30 June 2016, the PSC Register will form part of the new annual ‘confirmation statement’, which is replacing the current annual return regime. From 6 April 2016, a relevant company’s or LLP’s PSC Register must not be entirely blank.7
As the PSC Register will be publicly available, there are some protections available to safeguard sensitive information. The current CA 2006 rules on the disclosure of the residential addresses of directors will apply to the residential addresses of PSCs, and the day of an individual’s date of birth will be excluded from the PSC Register available through Companies House via the new annual confirmation statement. However, wider disclosure to certain specified public authorities and credit reference agencies. Further, if a PSC believes that the disclosure of their information will put them at serious risk of being subjected to violence or intimidation, they may apply to have their information protected from disclosure.8
The Two Types of Disclosure Under the PSC Regime
There are two ways in which disclosures as regards persons having significant control might be made: (1) relevant companies and LLPs have a duty to investigate and obtain information about such persons, to keep that information up-to-date and to maintain it on a register; and (2) at the same time, persons who have significant control have a separate duty to disclose it to the relevant company or LLP, and to update information so disclosed.
Enquiries Commenced by the Company or LLP
Relevant companies and LLPs are required to take reasonable steps to establish whether they have any PSCs9 and, if so, to identify them. Relevant companies and LLPs are also required to seek updated information where they know or have reasonable cause to believe there to have been any change or changes in relevant particulars.
The usual method for achieving this is for the relevant company or LLP to send a notice to each person which it knows to be, or has reasonable cause to believe, is a PSC with respect to it. The notice requires the recipient to confirm whether it is a PSC with respect to the relevant company or LLP, to confirm or correct any details supplied in the notice and to complete any details which are missing.
Notices may also be sent to any person whom a relevant company or LLP knows or has reasonable cause to believe either knows the identity of a PSC or knows the identity of a person with that knowledge, in which case the recipient must confirm whether they have such information and, if so, to supply particulars.
Pro forma notices are available, though their use is not mandatory.10
Separate Duty of Persons Who Have Significant Control
Quite separately from the above, PSCs who know (or ought reasonably to know) that they should be recorded on the PSC Register, where the required particulars of that PSC are not so recorded and where such state of affairs has persisted for a period of at least one month without the relevant company or LLP having issued a notice as described above, are under a duty to supply the relevant information within a further period of one month. There is a similar duty as regards updates.
Failure by a relevant company or LLP to take reasonable steps to identify its PSCs is a criminal offence. The punishment (applicable to both the company and any officer in default) is an unlimited fine and/or two years’ imprisonment.
The default provisions for persons to whom a notice is sent by a relevant company or LLP are more complex. If default is made on a notice issued by a relevant company or LLP, that company or LLP may issue a ‘warning notice’, and if, after a one-month period, the default continues, the company or LLP may issue a ‘restrictions notice’. A restrictions notice has the key effects of prohibiting transfers, prohibiting the exercise of rights attaching to the relevant shares or interest, and prohibiting distributions or payments on the relevant shares (except on liquidation).11 A restrictions notice must be withdrawn by the relevant company or LLP if: (1) the original notice is complied with; (2) it is satisfied that there is a valid reason justifying the default; or (3) it discovers that a third party’s rights are being unfairly affected.
Separately, if a person to whom a notice is sent by a relevant company or LLP fails to comply with that notice, or knowingly or recklessly makes a statement which is false in a material particular, or if a PSC fails in its own duty of disclosure described above, it commits a criminal offence, for which the punishment is again an unlimited fine and/or two years’ imprisonment.