In brief

The regulations require UK companies to keep a register identifying the people with significant control or influence over them.  Introduced by the Small Business, Enterprise and Employment Act 2015, the regulations will be implemented under the Companies Act 2006, as amended and will apply (subject to limited exclusions) to all companies registered in the UK, including wholly owned subsidiaries, dormant companies, unlimited companies, community interest companies and Societates Europaeae (SEs). The register is known as the “PSC Register”.

Companies will be required to take reasonable steps to identify the persons who have control of or significant influence over them. Each such person is referred to as a “PSC”.

The objective is to increase trust and transparency in UK business by creating a public register of beneficial ownership and control of UK companies with the expectation that this will also ultimately help fight tax evasion, money laundering and terrorist funding.

Companies will be obliged to seek information from and about their PSCs and recipients of notices from companies requesting such information will be under a legal duty to respond. Failure to comply with the requirements will constitute a criminal offence.

Exemptions will apply to companies whose shares are traded on the Official List of the London Stock Exchange, on EEA exchanges or certain other exchanges with UK-equivalent disclosure rules.

This note summarises the measures being implemented for companies, however similar laws are also implemented in respect of LLPs.

Timetable

The new law comes into effect on 5 April 2016 by an amendment to the Companies Act 2006, and, unless they are exempt, companies will be obliged to keep a PSC Register from 6 April 2016. From 30 June 2016, companies will be required to file their PSC Register with Companies House.

What does Significant Control mean?

The conditions are:

  • Direct or indirect ownership of more than 25% of a company’s share capital; or
  • Direct or indirect control of more than 25% of a company’s voting rights; or
  • Direct or indirect rights to appoint or remove a majority of the board of directors of a company; or
  • Exercise of, or the right to exercise, significant influence or control over a company; or
  • Exercise of, or the right to exercise, significant influence or control over the activities of a trust or firm which itself meets one of the first four criteria in respect of a company.

A person may have the ability to exercise significant influence or control as a result of a range of factors including the company’s constitution, rights attached to shares, rights afforded under a shareholders’ agreement or otherwise.“Control” and “significant influence” are to be viewed as alternatives:

  • A person having control of a company (or the activities of a trust owning a company) has the power to direct its policies or activities; whereas
  • A person having significant influence may not have control but has significant influence to ensure that the company (or the owning trust) adopts policies or activities which are desired by the person who has significant influence.

Guidance provides examples of what may constitute actually exercising significant influence or control notwithstanding that one of the other conditions is not met. This will include where:

  • A person’s recommendations are always or almost always followed by shareholders who hold the majority of the voting rights in the company when they decide how to vote; or
  • A person who is involved in the day to day management of a company but who is not a member of the board of directors, but who regularly or consistently directs or influences a significant section of the board or is regularly consulted on board decisions and whose views influence decisions made by the board.

The nature of a person’s control of influence must be recorded on the PSC Register. Control will be recorded primarily on the PSC Register by way of shareholding bands, e.g. 50% to 75%.

Companies and Trusts

Where a company is owned by a trust, the company’s PSCs may be the trustees, the settlor, or a major beneficiary of the trust depending on the specific circumstances.

Protectors, with a power to appoint or remove trustees, may also come within the scope of having significant control over the company.

The guidance indicates that a person with a right to direct or influence the running of the activities of the trust, a right to direct the distribution of funds or assets or a right to direct investment decisions of the trust may, by virtue of those rights, be the PSC of the trust’s subsidiary company.

The drafting is intentionally wide so that the effect of the new law will not be frustrated by businesses using non-UK trusts or vehicles in their structures.

Exclusions

  • Certain relationships will not give rise to a person being a PSC, including:
  • Persons providing advice or direction in a professional capacity, investment managers and tax advisers;
  • Persons engaging in a third party commercial or financial agreement such as a customer or lender;
  • Employees acting in the course of their employment; and
  • Directors of a company.

Such exclusions may not apply if the relationship or role differs materially from how such a role or relationship is generally understood or if, when looked at together with other relationships a person has with the company, e.g. where a person is both an employee and satisfies one of the other tests for control or influence, the employee status will not necessarily override the other condition.

Filing and access to the PSC Register

The PSC Register will be required to be kept at the registered office unless the company opts to keep it at Companies House. Information on the PSC Register will need to be confirmed to Companies House at least every 12 months on the company’s confirmation statement, which replaces the annual return.

The information that will need to be included in respect of each PSC will consist of personal details such as the person’s address, nationality and date of birth together with the date they became a registrable person and the circumstances of their control.

It will be possible for individuals to apply to court to prevent certain information on the register being made publically available. However, relief is only expected to be granted in a small minority of cases such as where there is a serious risk of violence that would result from a disclosure.

A company need only record the first registrable legal entity in its ownership chain. In other words, if the immediate owner of a UK subsidiary is another UK company subject to the PSC rules, only the details of the owning company should be recorded on the register for the subsidiary. This is designed to prevent groups of companies making multiple unnecessary disclosures. If, however, the immediate owner is a legal entity that is not subject to the PSC rules (e.g. an offshore company) then the disclosing company must look up the chain of ownership to identify either the next registrable entity or, if there are none, the ultimate PSC.

The PSC Register must never be left empty. If a company has not completed the steps to find out who its PSCs are, it must include a statement to this effect on the register. It is possible that some companies will not have any registrable PSCs (for example, where there is no particular shareholder who owns more than 25% of the shares and no other conditions are satisfied). In such circumstances, the company must still keep a register and record that no person or entity satisfies the conditions to be listed.
The register must be made available for inspection to any individual or organisation with a “proper purpose”. The company may charge a fee for providing a copy of some or all of its PSC Register and following consultation, the government has set a £12 fixed fee per request.

Sanctions

It will be a criminal offence if a UK company fails to take reasonable steps to identify or obtain the required information from its PSCs. Where such an offence is committed, the company and all of its officers will be liable and could face a penalty of up to 2 years imprisonment and/or a fine.

It will also be an offence for a person or entity not to respond to a company’s request for such information, subject to the same penalties.

In the event that a PSC does not respond to a notice issued by a company, the company may issue a restriction notice which would have the effect of preventing the exercise of certain rights the person enjoys as a shareholder in the company. Such restrictions can include non-payment of dividends and preventing the transfer of shares to a third party.

A company is not obliged to serve a restrictions notice but, if it fails to do so, it may face sanctions in respect of its duty to take reasonable steps to identify PSCs.

What next?

Companies will be obliged to maintain a PSC Register from 6 April 2016. It is therefore advisable for directors of UK companies to ensure that arrangements are put in place in advance in order to ensure compliance.

For more information, please contact Kelly Whitfield or Ed Taylor of the Corporate and Commercial Team.