As part of the drive for greater transparency in relation to corporate ownership and control, new legislation has been introduced which requires all unlisted UK companies and LLP’s, from 6 April 2016, to keep a register of people with significant control. The legislation is complex and places an increased administrative burden on companies and LLPs.
From 30 June 2016, companies and LLPs will need to file the information recorded on their PSC registers at Companies House.
Non-compliance with the new PSC regime will generally result in criminal liability punishable by a fine and/or imprisonment for up to 2 years.
From 6 April 2016 all unlisted UK companies and LLPs are now required to keep a register of people with significant control (PSC register). The requirements have been implemented under the Small Business, Enterprise and Employment Act 2015 which introduced a new Part 21A and Schedule 1A and 1B into the Companies Act 2016. The Department for Business, Innovation and Skills has also published both statutory guidance and non-statutory guidance in relation to the new regime. Parts 21A and Schedule 1A and 1B apply to LLPs (with modifications) pursuant to the Limited Liability Partnerships (Register of People with Significant Control) Regulations 2016 (SI2016/340).
Who do the rules apply to?
- All UK incorporated companies other than UK companies that are subject to the Financial Conduct Authority’s Disclosure and Transparency Rules or companies with voting shares admitted to trading on a regulated market in the EEA or on specified markets in Switzerland, the USA, Japan and Israel;
- UK registered European companies (Societas Europaeae); and
- LLPs (including dormant LLPs and wholly-owned subsidiaries).
What is required?
To avoid multiple registrations, companies or LLPs are only required to include a PSC or RLE (as defined below) on the PSC register if such persons are registrable. Companies/LLPs, therefore, firstly have to establish whether there are any PSCs or RLEs and then consider whether such persons or entities are registrable under the new rules.
Who is a PSC?
A PSC is any individual (or any person deemed to be an individual for such purposes by the legislation) who meets one or more of the following five conditions (Specified Conditions). A person will be a PSC in relation to a company if he:
- directly or indirectly holds more than 25% of the shares;
- directly or indirectly holds more than 25% of the voting rights;
- directly or indirectly holds the right to appoint or remove a majority of the directors;
- otherwise has the right to exercise, or actually exercises, significant influence or control over the company;
- has the right to exercise, or actually exercises, significant influence or control over the activities of a trust or firm (not being a legal person) which itself satisfies one or more of the first four Specified Conditions.
Significant influence or control
The meaning of significant influence or control is the subject of statutory guidance which provides examples of situations in which a person will be deemed to have the right to exercise, or actually exercises, significant control. It also lists various safe harbours for directors, advisers and others who might otherwise be deemed to exercise significant influence or control over a company/LLP.
Indications of control or significant influence include:
- where a person can direct the activities of a company/LLP; or
- where a person can ensure that the company/LLP generally adopts the activities he desires.
Rights to exercise significant influence or control may arise:
- from the provisions in the company’s constitution;
- from rights attached to a person’s shares or interest;
- from rights in a shareholders’ or partnership agreement or in some other way;
- from veto rights over decisions – however veto rights over fundamental matters to protect minority interests will not, on their own, usually constitute a right to exercise significant influence or control.
Shadow directors are likely to have significant influence or control.
Significant influence or control over a trust or firm which satisfies any of the Specified Conditions is likely to arise when a person has the right to direct or influence its activities (e.g. power to direct investment decisions or to direct the distribution of funds or assets).
Direct or indirect interests
A PSC will hold an interest in a company indirectly where that person holds a majority stake in a legal entity which in turn either directly (or indirectly through a chain of legal entities, each of which holds a majority stake in the next in the chain) holds a majority stake in that company. The concept of majority stake includes the ability to exercise voting control, or to appoint or remove the majority of the directors or having a dominant influence or control over that other entity.
Who needs to be entered on the PSC register?
PSCs – unless the only interest held by such PSC is an indirect interest and any entity through whom such interest is indirectly held is itself an RLE. In circumstances where a PSC holds a direct interest in a company in which he also has an indirect interest held through an RLE, the PSC will need to be registered and his interests will be aggregated with those of the RLE for the purposes of completing the PSC register.
RLEs – that is a relevant legal entity being a legal entity which: (i) would satisfy any of the Specified Conditions if it was an individual; (ii) is required to keep a PSC register or satisfies disclosure requirements which have been deemed “equivalent”; and (iii) it is the first RLE in the ownership chain. Companies and LLPs do not have to look beyond the first RLE in the chain to identify the PSCs behind that RLE (PSCs can be tracked through chains of companies/LLPs but PSC information will not have to be repeated in the register for each subsidiary in the chain) unless the PSC also holds a direct interest in that company.
Contents of the PSC register
There is no prescribed format for a PSC register, however the Register of People with Significant Control Regulations (SI 2016/339) determine when a company or LLP must make entries in the PSC register according to circumstances which arise at any date after the creation of the register.
From 6 April 2016, the PSC register may never be blank, so if there are no PSCs or RLEs then this fact must be recorded. The non-statutory guidance sets out the official wording which must be adopted when making certain register entries.
The following information is also required to be recorded:
- Full name;
- Service address;
- Country / state of residence;
- Date of birth;
- Usual residential address (NB: this will notappear on public record);
- Details of any current restrictions on using / disclosing the PSC’s information;
- Date became registrable; and
- Nature (and, when relevant, extent) of control
Information in relation to a PSC must be complete and confirmed by the PSC before it may be entered on the PSC register;
- Registered / principal office address;
- Legal form and governing law;
- Applicable companies register and registration number
- Date became registrable; and
- Nature (and, when relevant, extent) of control.
A protection regime applies so that although residential addresses of all PSCs will be kept by the company/LLP, such information will not be disclosed to the public except to specified public authorities or credit reference agencies.
If a PSC or RLE satisfies one or more of the first three Specified Conditions, each Specified Condition satisfied and the manner of satisfaction must be recorded. It is only necessary to enquire whether a person or entity satisfies the fourth Specified Condition if that person or entity does not satisfy any of the first three Specified Conditions.
Duty to identify PSCs or RLEs
Companies and LLPs are obliged to take all reasonable steps to find out if there are people or entities that have significant control or influence over the company or LLP and non-statutory guidance has been issued which provides some non-exhaustive insight as to what this may require. This includes reviewing constitutional documents, statutory registers of members, shareholders’ agreements (if any), statements of capital and monitoring voting patterns if these suggest that parties are acting in concert. Companies or LLPs must issue notices to obtain the information required in order to complete the PSC register.
- A company or LLP has the power (and is under a duty) to serve a notice on anyone that it knows, or has reasonable cause to believe, is a registrable PSC or RLE or on anyone else it suspects may know the identity of a PSC or RLE.
- There is a duty on PSCs and RLEs to provide companies/LLPs with the information required for the PSC register within one month of obtaining control of the interest.
- The PSC register must be kept up-to-date. When a company/LLP knows or suspects that the information on the PSC register has changed it must take steps to verify the changes.
Sanctions for non-compliance
- PSCs or RLEs who fail to respond to notices requesting information run the risk that the company or LLP may serve a restrictions notice over the interest. Once a restrictions notice is in force the restricted interest cannot be transferred, no rights can be exercised in respect of the interest (e.g. no voting rights), no payments may be made (e.g. no dividends) and no further shares (in the case of companies) may be issued.
- Companies or LLPs which fail to maintain a PSC register, update information or refuse a request to inspect a register commit a criminal offence, as do their directors/partners, which is punishable by a fine or up to 2 years’ imprisonment.
- Any person providing false information in relation to a PSC or RLE interest commits a criminal offence punishable by a fine and/or up to 2 years’ imprisonment.
Publication of the PSC register
From 30 June 2016, companies and LLPs will need to file the information recorded on their PSC registers at Companies House by including this information within the new annual confirmation statement which will replace the annual return from this date. From 30 June 2016, newly incorporated companies will be required to file a statement of initial control at Companies House.
The new PSC regime represents a significant change to company law and will place an increased administrative burden on companies and LLPs. The task of identifying who should be disclosed in the PSC register can be complicated. Directors and Company Secretaries will need to acquaint themselves with the new rules and consider how they will apply now. If you would like further information or guidance on the PSC regime, please contact Andrew Hill, John Wilson, Kate Parker or Eleanor James on 01228 552600 or 01524 548494.