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New rules on corporate transparency

The Government introduced the Small Business, Enterprise and Employment Bill to Parliament on 25 June 2014. The Bill will introduce new requirements regarding corporate transparency.

Companies will be required to keep a register of persons with significant control over the company – the “PSC register”. The PSC register will have to be available for inspection at the company’s registered office or other specified location. Private companies will have the option of keeping PSC information on the public register at Companies House, rather than in a separately maintained PSC register.

A “person with significant control” over a company is defined as a person that (either alone or jointly with others) meets one or more of the following conditions:

  • the individual holds, directly or indirectly, more than 25 per cent of the shares in the company
  • the individual is entitled, directly or indirectly, to exercise or control the exercise of more than 25 per cent of the voting rights in the company
  • the individual is entitled, directly or indirectly, to appoint a majority of the board of directors of the company or to control the exercise of a right or rights (in aggregate) to appoint or remove a majority of the board
  • the individual has the right to exercise, or actually exercises, significant control or influence over the company
  • the trustees of a trust or members of a firm that is not a legal person meet one or more of the other specified conditions and the individual has the right to exercise, or actually exercises, significant influence or control over the activities of the trust or firm.

There are some exceptions as to who will have to appear on the register; these are classified as “non-registrable PSCs”.An individual is non-registrable if they have significant control over the company only by virtue of having significant control over a “relevant legal entity” which is a legal entity that would have been a PSC had it been an individual, and which is subject to its own disclosure requirements.

The effect of this provision is that if company X is owned by company Y and company Y maintains its own register of PSCs, a person with significant control of both X and Y as a result of the same shareholding (Z) need not be registered as a PSC in relation to X. Y will instead be noted in X’s PSC register, and Z will only be listed on Y’s PSC register.

Companies will be obliged to investigate, obtain and update information on PSCs and relevant legal entities. A company must:

  • take reasonable steps to find out if there is anyone who is a registrable person or relevant legal entity in relation to it, and identify such persons and entities
  • give notice to anyone whom it knows or has reasonable cause to believe to be a registrable person or relevant legal entity
  • give notice to a person it knows or has reasonable cause to believe knows the identity of a registrable person, relevant legal entity, or person likely to have knowledge of a registrable person or relevant legal entity
  • give notice to a registrable person or relevant legal entity as soon as reasonably practicable if the company knows or has reasonable cause to believe that the person or entity has ceased to be a registrable person or there has been a change in their particulars.

An offence will be committed by the company and every officer in default if the company fails to take steps or give notice as required.

There is a proactive disclosure obligation on registrable persons and relevant legal entities in certain circumstances which aims to ensure that, even if not known or identified by the company, the registrable persons and relevant legal entities are registered in thePSC register. A disclosure obligation is triggered if:

  • a person knows or ought reasonably to know that they are a registrable person or relevant legal entity
  • their particulars are not already registered in the company’s PSC register
  • they have not received a notice from the company
  • these circumstances have continued for a period of 28 days.

There are sanctions for individuals or legal entities who fail to comply with a notice or their disclosure duties. Further notices – a warning notice and a restriction notice – can be issued, which may lead to restrictions on share dealing. The company may also commit an offence, i.e. if the company issues shares in contravention of a restriction.

The PSC register must include the required particulars or each person with significant control over the company who is a registrable person or relevant legal entity. The required particulars are:

  • individuals – name, service address, country or state of usual residence, nationality, date of birth and usual residential address, date and nature of control
  • entities treated as individuals – name, principal office, legal form and law by which it is governed, date and nature of control
  • relevant legal entities – its corporate/firm name, registered or principal office, legal form and law by which it is governed, register of companies in which it is entered and registration number (if applicable), date and nature of control.

The particulars of an individual must not be included unless they have been confirmed.

When making an application to register a company, a “statement of initial significant control” must be included with the documents, which must contain the required particulars (as above) and any other matters that would be required on incorporation to be entered in the PSC register. If there is no registrable person or relevant legal entity, a statement to that effect will be required instead.

The Government hopes for the Bill to become law before the May 2015 General Election.

WM comment
The Government anticipates that a more transparent regime will attract greater inward investment. Conversely, wealthy individuals who have established corporate structures to protect family confidentiality may find, once the draft legislation is published, that they need to revisit those structures.

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