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Persons of Significant Control

Aug 10, 2016

As of April this year, changes made to the Companies Act 2006 introduced a new requirement for unlisted companies, Societates Europaeae (SEs) and Limited Liability Partnerships (LLPs) to keep a register of individuals that have significant influence or control over them (PSC Register). Companies, SEs and LLPs are now required to deliver the information contained in their PSC register annually to Companies House as part of their confirmation statement (which replaces the existing annual return).

The requirement to keep a PSC Register aims to improve transparency in the ownership and control of UK companies whilst combatting financial crime. This briefing is intended to give a broad overview of the required disclosure by UK companies of Persons of Significant Control (PSC). 

 

What does this mean for your business or you as an individual?

All UK unlisted companies and LLPs are now obliged to obtain and maintain PSC information. However, the requirement to keep a PSC register does not apply to UK companies to which Chapter 5 of the Disclosure and Transparency Rules (DTR) applies, or UK companies with voting shares admitted to trading on a UK or EE regulated market, or on specified markets in Switzerland, the US, Japan and Israel.

There is also an obligation on any individual PSC to make the information available to any company of which he or she may be a PSC, either proactively or in response to an information request.

A company failing to take reasonable steps to identify its PSCs, or a PSC fails to provide the required information is a criminal offence.

Who can be a person with significant control? 

The PSC regime is particularly concerned with identifying individuals or government who ultimately control UK companies. The following may be required to be disclosed on the PSC register:

  • Individuals;
  • Corporations sole (i.e. legal entities consisting of one person only);
  • Governments or government departments of any country or territory or part thereof;
  • International organisations whose members include two or more countries or territories or their governments; or
  • Local authorities or local government bodies in the UK or elsewhere.

What makes someone a person having significant control?

A person with significant control over a company is an individual who meets one or more of the following “conditions”:

  1. Directly or indirectly holding more than 25% of the shares;
  2. Directly or indirectly holding more than 25% of the voting rights;
  3. Directly or indirectly holding the right to appoint or remove a majority of directors;
  4. Otherwise having the right to exercise, or actually exercising, significant influence or control; or
  5. Having the right to exercise, or actually exercising, significant influence or control over the activities of a trust or firm which is not a legal entity, but would itself satisfy any of the first four conditions if it were an individual.

What if a company is controlled by another legal entity or chain of legal entities?

When a company is owned by a legal entity (such as a Company or a Limited Liability Partnership) their details must be disclosed on the PSC register if that entity is both “relevant” and “registrable”, otherwise known as a Relevant Registrable Entity (RLE).

A legal entity will be “relevant” if it:

  • Would satisfy conditions (i) to (iv) above for being a “person with significant control” if it were an individual; and
  • Is required to keep its own PSC Register; or
  • Is subject to Chapter 5 of DTR or equivalent disclosure rules on a regulated market in a difference RRA state or other prescribed markets in non-EEA states. 

A legal entity will be “registrable” in relation to a company when it is the first relevant legal entity in that company’s chain of ownership.

In a scenario where a chain or group of legal entities control a company, it is not necessary to disclose the ultimate controlling individuals of those legal entities. Anyone wishing to identify the ultimate individuals in a group will have to investigate the chain of ownership by looking at the PSC Register of each of those companies concerned.  

What if a company is controlled by an overseas company?

Where a legal entity which is not a registrable RLE (e.g. an overseas company) but has a majority stake in that company, that company will not be registrable in the PSC Register. Once again, anyone wishing to identify the ultimate individuals will need to need look at the ownership and control of that legal entity to identify any individuals or registrable RLEs who have a “majority stake” in that legal entity, and those persons should be entered in the PSC Register.  

Someone will hold a “majority stake” if:

  • They hold a majority of the voting right in the legal entity;
  • They are a member of the legal entity and have the right to appoint or remove a majority of its board directors;
  • They are a member of the legal entitles and control a majority of the voting rights by agreement with other shareholders or member ; or
  • They have the right to exercise or actually exercise dominant influence or control over the legal entity.

What should a company do?

All unlisted UK companies must take “reasonable steps” to determine whether any individual or legal entity are required to be entered on their PSC Register. Companies should be proactive and investigate the chain of ownership and be ready to serve notices on those they believe are a PSC, a registrable RLE or someone likely to have that knowledge. If anyone fails to respond to an additional warning notice and the addressee has a relevant interest in the company, a company should consider whether it would be appropriate to impose restrictions on any shares or rights they hold in the company.

Companies should ensure their register is updated and any individual or legal entities should contact the relevant company if they are required to be on that company’s PSC register. A company failing to take reasonable steps or an individual failing to comply with a request for information without a valid reason is a criminal offence. 

It should be noted that a company’s PSC register should never be empty. If a company is taking reasonable steps or if there are no PSCs these fact should be entered on the company’s PSC register with the official wording.

What details need to be held on the PSC register?

For individuals who are PSCs: For registrable RLEs:
Name Name of company
Full date of birth Registered/principal office
Nationality Legal form and governing law
Country, state or part of the UK PSC usually lives Applicable company register and registration number
Service Address Date on which it became registerable
Residential address (will not be publicly available) Which of the conditions for being a PSC are met (official wording must be used).
Date became PSC  
Which of the conditions for being a PSC are met  (official wording must be used).  
Any restriction on disclosing the PSC's informtion that are in place  

Information disclosed in a PSC register must be “confirmed”. Information can be treated as confirmed if the PSC supplied the company with the information, the information was provided with the knowledge of the PSC, the PSC confirmed the information was correct or the company previously confirmed the information, and have no reason to believe it has changed.

A UK company’s PSC register will need to be kept at its’ registered office and filed at Companies House. The PSC register must be available for inspection to members of the public acting with ‘proper purpose’. Residential addresses will not be available for inspection.

How does this affect the private equity sector?

Legislation has confirmed that individual limited partners (or individuals with interest in corporate limited partners) will not need to be included in the PSC register merely because they hold that position. Only those who exercise a significant control or influence over the management or activities of the limited partnership, i.e. a general partner, will need to be captured on the register. However, if any other limited partner or individual sitting behind a corporate limited partner satisfies one of the conditions that person should also be entered in the PSC register. 

What do I do now?

Relevant UK companies and LLP’s should have already taken the necessary steps to review their ownership and control structure to gather the information required to complete their PSC Register.  Failing to comply with the provisions is a criminal offence which could result in up to two years imprisonment and/or a fine.

Further to this, it is likely that companies will be affected by the EU’s Fourth Money Laundering Directive obliging EU member states to maintain central registers listing information on the ultimate beneficial ownership of corporate entities. The legislation came into force on 26 June 2015 and the UK government has until June 2017 to transpose the Directive into national legislation. Watch this space! 

If you have any questions about the issues raised in this briefing, please call Matthew Cunningham or Graham Halliday on 020 7234 0200 or e-mail contact@waterfrontsolictors.com.

Please note that the contents of this briefing provides only a general overview, and is not intended to be, and should not be used as a substitute for take legal advice.

Read more about the author of this piece here.

Graham Halliday

Corporate solicitor

Graham has experience in advising clients on Corporate Law matters such as M&A and setting up businesses. His experience of working with a start up prior to entering the law has given him a good understanding of the issues which entrepreneurs and start ups face. Read more.

 

Matt Cunningham

Head of Corporate 

Recognised in Chambers UK 2016 as a leading individual for venture capital

Matt advises clients on a wide range of corporate matters, including setting up businesses, venture capital, joint ventures, and mergers and acquisitions. He has particular expertise in advising entrepreneurs and investors in the IT, technology and digital media sectors. Read more.