New Register of People with Significant Control

Author: Simon Chapman and Wende Hubbard of Burgis & Bullock (Warwickshire, England - TIAG)

Summary

With effect from 6 April 2016, all non-listed UK companies and limited liability partnerships (“LLPs”) are required to create and maintain a register of the people that have significant influence or control over them (“PSC Register”).  These registers will be open for public inspection and there are criminal sanctions for non-compliance.

 

Legal background

The requirements to keep a PSC Register are set out in Part 21A of the Companies Act 2006 as inserted by the Small Business Enterprise and Employment Act 2015 with detailed provisions set out in:

Guidance on the implementation of these new requirements can be found on the UK Government website.

The objective of the new measures is to help combat tax evasion, money laundering, and terrorist financing by allowing a full picture of both the legal and beneficial ownership of businesses to be created.  Previously, only the direct, legal owners of companies needed to be disclosed in statutory filings at the UK’s company registry.

Who is affected?

Virtually all UK companies and LLPs will have to set up a new PSC Register.  Only companies with shares traded on the London Stock Exchange, AiM, ISDX, or certain overseas markets are exempt as they are subject to other regulatory ownership disclosure rules.

This means that privately owned companies, wholly-owned subsidiaries, dormant companies, charities, companies limited by guarantee, unlimited companies, and LLPs will all be caught by the new reporting regime.

Who is a person with significant control?

An individual with significant control will meet one of the following five tests:

  1. Directly or indirectly holds more than 25% of the company’s shares.
  2. Directly or indirectly controls more than 25% of the voting rights.
  3. Directly or indirectly is able to control the appointment or removal of a majority of the board of directors.
  4. Actually exercises, or has the right to exercise, significant influence or control over the company.
  5. Actually exercises, or has the right to exercise, significant influence or control over any trust or firm which has a significant control (under one of the four tests above) over the company.

The regulations are complex, very wide ranging, and in some cases the conditions for classification as a PSC may be subjective.  They are designed to look beyond the immediate legal ownership of the company through to its ultimate owners, controllers and beneficiaries.  Detailed provisions relating to the interpretation of these tests can be found in statutory and non-statutory guidance on the UK Government website.

There are “safe harbour” provisions in the rules such that certain roles and relationships would not normally lead to the conclusion that an individual exercises significant influence or control over a company:

  • a person providing advice or direction in a professional capacity, such as a lawyer or accountant;
  • a person engaged under a third party commercial agreement, such as a supplier, customer, or lender;
  • a person who is an employee acting in the course of their employment, or a director;
  • a person exercising a function under enactment, such as a liquidator; and
  • a person who makes recommendations to shareholders on a one-off issue.

The PSC Register

The company must take all reasonable steps to investigate whether it has any PSCs.  This may involve sending out information-seeking notices to relevant individuals that might be PSCs, or to other people or legal entities that might know the identity of the company’s PSCs, such as lawyers, accountants, or banks. 

There is a corresponding duty on a PSC and other parties to provide information about itself and its PSC status, or the PSC status of other individuals, when requested by the company.  In addition, individuals are under an obligation to notify the company of their potential status as a PSC if they have not been contacted by the company within one month of being such.

The PSC Register must never be empty, even if all the information is already contained in the company’s past Annual Returns.  It must contain information about the status of the company’s investigation into its PSCs (using prescribed wording), required particulars of any PSCs (name, address, nationality, and date of birth) plus details of the nature of their control over the company.

The details from this register will have to be made publicly available from June 2016 at the UK’s company registry, Companies House.  After providing an initial statement, companies are required to confirm their details as part of the annual Confirmation Statement (formerly the Annual Return) or when any changes occur.

What are the consequences for non-compliance?

Companies and their officers that fail to comply with the new regulations are guilty of a criminal offence, punishable by a fine and/or imprisonment for up to two years.

PSCs or other parties that fail to respond to notices or to provide information about their status may also be committing a criminal offence.  PSCs may be subject to additional sanctions including restrictions on the right to vote or receive dividends or to profit from a sale of the shares, all of which may be imposed without a Court order.

Stay out of jail!

The clients of all TIAG and TAGLaw members that have interests in or manage companies in the UK will be affected by these new rules.  For advice and assistance on how to comply with the new law and avoid criminal penalties please contact:

Simon Chapman

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T: +44(0)1926 468705

Wende Hubbard

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T: +44(0)1926 466425