The Register of People with Significant Control (‘PSC Register’) is a new statutory register which most UK companies and LLPs are now required to keep from 6 April 2016 to identify ultimate beneficial owners and controllers. Failure to comply is a criminal offence.
The Small Business, Enterprise and Employment Act 2015 introduced a number of measures to increase the accountability of companies by making it easier to see who owns or controls them. One part of this was to establish a new central public register of ‘people with significant control’ (PSC Register). This will make it possible to see not just who owns shares in a company, but also who influences or controls a company behind the scenes, for example by being able to vote on shares owned by other people, or exercising control under shareholders or other agreements. Until recently these people or organisations may have been under no obligation to declare their interest. The measures promoted by the UK at the G8 summit are designed to help combat tax evasion, money laundering and terrorist financing and foster investor confidence.
All companies and limited liability partnerships (including community interest companies, companies limited by guarantee, academy trusts and charitable companies) must now compile and hold a PSC register. Listed companies and those quoted on AIM are exempt because they are already under stringent disclosure requirements as part of their admission to the market. Cooperatives and community benefit societies, charitable incorporated organisations (CIOs) and limited partnerships are currently exempt as well. From 30 June 2016 companies will have to give this information to Companies House when they deliver their confirmation statement. (From that date the obligation to file an annual return will be replaced by the requirement to “check and confirm” various matters by filing a ‘confirmation statement’ with Companies House, notifying any changes at least once in any 12 month period). Companies House will hold PSC information online for all UK companies by April 2017. This will then be freely available in one central, searchable public register.
Who is a ‘person with significant control’?
An individual with significant control must meet at least one of the following five conditions:
- directly or indirectly holds more than 25% of the nominal share capital; or
- directly or indirectly controls more than 25% of the votes at general meetings; or
- directly or indirectly is able to control the appointment or removal of a majority of the board (Any such rights in shareholders’ or joint venture agreement could be caught by this condition); or
- actually exercises, or has the right to exercise, significant influence or control over the company; or
- actually exercises or has the right to exercise significant influence or control over any trust or firm (which is not a legal entity) which has significant control (under one of the four conditions above) over the company.
Both the Act and the Regulations contain detailed provisions relating to the interpretation of these five conditions. Whilst the first 3 categories are reasonably easy to spot, the fourth and fifth are more tricky. The Government has published statutory guidance on the meaning of ‘significant influence or control’ to help with the classification.
Whilst a person with significant control is usually an individual, there is also an obligation to disclose in the register any corporate entity which holds similar influence (known as a ‘relevant registrable entity’). For example, if a company has 4 shareholders who each hold 25% of the shares and one of them happens to be another limited company, details of that company would have to be entered into the register, along with the 3 individuals. In the case of a company limited by guarantee, (where often the members are the same people as the directors), if there are 4 or fewer members, then usually each will hold 25% of the voting rights and each would need to be entered in the register. In the case of a charity with a wholly-owned trading subsidiary, the trading subsidiary would need to record in its PSC register that it was owned 100% by the parent charity. The PSC register cannot be blank. Even if there are no persons to disclose, you should write “The company knows or has reasonable cause to believe that there is no registrable person or registrable legal entity in relation to the company”. Remember that the position can change over time if the number of members changes and it is important to keep the register up to date.
What steps do companies need to take?
In order to compile its PSC Register, a company is under a duty to take reasonable steps to find out if anyone is a registrable person or registrable legal entity in relation to it and to identify them. Investigations should be made by the company . The Act and guidance set out detailed requirements for serving notices. If an individual or legal entity fails to respond to a company’s enquiries, the company will ultimately have the power (without a court order) to remove the shareholder’s voting rights, and impose other restrictions on any shares held by them (‘disenfanchisement’). If the company has not sent the necessary notices requesting PSC information, the registrable individuals and relevant legal entities concerned still have an obligation to inform the company proactively of their interest, and any changes to it. The requirement to keep a register of members (shareholders) and directors has always been an important duty imposed by company law, but I suspect one which is more honoured in the breach than in the observance by many smaller companies. In view of these new requirements it will be a very important piece of housekeeping to keep on top of. I have seen many difficult situations where companies have been unable to identify or contact their members, with a paralysing effect on their ability to take key decisions which require a members’ resolution.
There are new criminal penalties for companies and all their directors and the relevant individuals or legal entities for failing to keep a register (fine of up to £1000 plus daily penalty of £100), failure to provide the information or providing false information (up to two years in prison and or an unlimited fine). For the individuals or legal entities concerned, the threat of losing voting rights and dividends which be an effective deterrent against non-compliance. We may yet see these disenfranchisement provisions being abused by some in an attempt to deny shareholders their rights.
Compiling the PSC Register
Create a new tab in your statutory books labelled ‘PSC Register’.
Personal information: For individuals on the PSC Register certain personal information will need to be disclosed:
- Date of birth
- Country, state or part of the UK where the PSC usually lives
- Service address
- Usual residential address – If the residential address has already been given because it is also the service address, then you do not need to give it again
- The date when the individual became a PSC in relation to your company
- Which of the five conditions for being a PSC the individual meets, with quantification of the interest where relevant – For a PSC who meets one or more of conditions (i) to (iii) your company is not required to identify whether they also meet condition (iv) – You must use the official wording, (see Annex 2 of Guidance)
- Any restrictions on disclosing the PSC’s information that are in place (eg where confidentiality order is in place)
The Act and the Regulations contain safeguards on how this personal information may be used and disclosed.
- Name of the legal entity
- The address of its registered or principal office
- The legal form of the entity and the law by which it is governed
- If applicable, a register in which it appears (including details of the state) and its registration number
- The date when it became a registrable entity in relation to your company
- Which of the five conditions for being a PSC it meets, with quantification of its interest where relevant – For an entity that meets one or more of conditions (i) to (iii) your company is not required to identify whether they also meet condition (iv) – You must use the official wording, (see Annex 2 of Guidance)
Status of investigations: The Regulations require that where a definitive position as to ultimate control has not yet been determined, or where the disenfranchisement provisions have been invoked, the PSC Register must include certain statements by the company confirming what steps have been taken to identify registrable persons or legal entities and the position in relation to any restrictions notices issued. If it is a work in progress you can state, “The company has not yet completed taking reasonable steps to find out if there is anyone who is a registrable person or a registrable relevant legal entity in relation to the company”.
A company’s PSC Register will be kept at its registered office (or other inspection address) and must be available for public inspection in the same way as the register of members. The information on the PSC Register will also need to be confirmed to Companies House at least every 12 months and will be held on a public searchable database. From 30 June 2016 companies will be able to elect to keep their PSC Register (as well as all their other statutory registers) at Companies House. Companies will be obliged to provide copies of the PSC Register to any person on request and will be able to charge a small fee for this.
The major issue facing companies and LLPs required to keep the new PSC Register will be putting in place the internal processes necessary to enable them to compile and keep the register updated. The possibility of criminal sanctions indicates that regulators will take the new duties seriously. This underlines the importance of having a good company secretarial service, whether in-house or outsourced to a cost-effective professional provider like Elderflower who can provide peace of mind.
If you need any help in understanding the implications of these changes and ensuring compliance, get in touch today, firstname.lastname@example.org or 01625 260577.
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