From 6 April 2016 UK companies and LLPs will be required to hold their own Register of People with Significant Control (PSC register). From June 2016, they will have to provide information to Companies House about their PSC register when they deliver their “confirmation statement” (which replaces the annual return).
The objective of the legislation – contained in the Small Business, Enterprise and Employment Act 2015 – is to identify those individuals who own or control more than 25 per cent of a UK company’s shares or voting rights, or who otherwise exercise significant influence or control over the company or its management by entering their names on a private and public register. The public register will be searchable both by company name and by individual name. The rationale is to help combat tax evasion, money laundering and terrorist financing by providing transparency as to who is the beneficial owner and controller of a company.
Accordingly, companies must identify their PSCs. It will be a criminal offence for the company and its officers if they fail to take reasonable steps to identify any registrable person or fail to give notice to anyone whom they know or have reasonable cause to believe, to be registrable. Investigations by the company must be made by notice and the legislation prescribes the requirements for these notices. Failure by an individual or legal entity to respond to a company’s enquiry will give the company the ability to disenfranchise that individual/legal entity (without the need for a court order) and impose other restrictions on shares held by them.
Who is a PSC?
To be a PSC, an individual (which, for these purposes, includes corporations sole, government bodies and local authorities) must meet one or more of the following conditions:
- hold more than 25 per cent of the company’s shares (either directly or indirectly)
- hold more than 25 per cent of the company’s voting rights (either directly or indirectly)
- hold the right, directly or indirectly, to appoint or remove the majority of the board
- have the right to, or does, exercise significant influence or control over the company.
There is a fifth condition which is that the trustees of a trust who meet any of the above conditions in respect of the company, or who would do so if they were individuals, must be listed on the PSC register. In addition, an individual having the right to exercise, or who actually exercises, significant influence or control over the activities of the trust will be treated as a PSC. This could include, in particular, settlors and beneficiaries where they retain the necessary degree of control over the activities of the trust.
Where the members of a firm that is not a legal entity – for example, an English partnership – would meet any of the above conditions if the firm were a legal entity, any person having the right to exercise, or who actually exercises significant influence or control over the activities of the firm will be treated as a PSC. Limited partnerships are treated in the same way as general partnerships for PSC purposes.
In the case of companies and LLPs, if they are a shareholder in a company and would come within the definition of a PSC if they were an individual, by satisfying one of the above conditions, and are subject to their own disclosure requirements (i.e. it is a UK company that is required to keep a PSC register or is a company that is listed on certain UK or EEA markets) then it should be included on the PSC register as a “relevant legal entity” (RLE).Its own shareholders may also have to be included on the company’s register if they satisfy any of the conditions themselves.
The legislation includes a number of anti-avoidance provisions including covering the position where shares are held by way of security; where shares are held by a nominee; joint interests and arrangements, and the situation where rights are exercisable only in certain circumstances.
What information is recorded?
The personal information to be disclosed includes the name, service address, nationality, date of birth and usual residential address. There are safeguards in the legislation concerning the use and disclosure of such personal information in respect of persons who would otherwise be at serious risk of violence or intimidation.
The draft Regulations suggest that the relevant condition (set out above) will need to be recorded and that, where the condition relates to the holding of shares or voting rights, including via a trust, the record should state which of the following bands the shareholding falls into:
- greater than 25 per cent but less than or equal to 50 per cent
- greater than 50 per cent but less than 75 per cent
- greater than or equal to 75 per cent.
The PSC register must be kept at the company’s registered office or other inspection address and be available for public inspection in the same way as the register of members. The information on the register will need to be confirmed to Companies House at least once every 12 months.
The new regime does not apply to UK publicly traded companies (Main Market and AIM) who, by virtue of DTR 5, are already subject to reporting obligations in respect of their major shareholders. It is also worth noting that the new regime does not apply to foreign entities operating in the UK.
The deadline for establishing a PSC register is fast approaching and companies need to be putting in place the necessary internal processes and procedures to enable them to compile and maintain the register. This will not always be a straightforward task. Please contact us if if you need assistance in preparing for the new regime.