People with Significant Control – new disclosure regime for UK companies and UK LLPs

From 6 April 2016 all UK incorporated companies (except for companies whose shares are listed on the London Stock Exchange, AIM, ISDX Growth Market, other regulated markets in the UK or EEA or on specified markets in Switzerland, the USA, Japan or Israel) will be required to maintain a register of people with significant control (PSC Register) alongside their other statutory registers. This will require companies to take reasonable steps to identify individuals who have a significant ownership or control right in relation to the UK company. The details of PSCs must be filed at Companies House the first time after 30 June 2016 when the company is required to make an annual confirmation (the procedure which replaces annual returns) and must be filed on incorporation of a new company. The new regime is part of a drive for greater transparency of corporate vehicles in the UK and to reduce the use of UK vehicles in financial crime.

Who is a PSC?

An individual will be a PSC by satisfying any one or more of the following conditions:

1. Directly or indirectly holds more than 25% of the shares; 
2. Directly or indirectly holds more than 25% of the voting rights;
3. Directly or indirectly holds the right to appoint or remove a majority of directors; 
4. Has the right to exercise, or actually exercises significant influence or control;
5. Has the right to exercise, or actually exercises, significant influence or control over the activities of a trust or firm which is not a legal entity, but would itself be a PSC under any of conditions 1 to 4 if it was an individual.

Significant influence or control

There is separate statutory guidance on the meaning of significant influence or control. This is non exhaustive and consist of principles and examples of when it is likely that significant influence or control exist. Rights to direct the activities of a business and rights to veto decisions about running the business, including veto rights over the appointment of a majority of the board of directors, indicate significant influence or control. Veto rights to protect a minority interest are not viewed as likely to be significant influence or control.

Significant influence or control over a trust or firm may be indicated by the right to appoint or remove trustees or partners; the right to direct distribution of funds or assets and the right to direct investments. Trustees of a trust should be entered in the PSC Register where the assets of a trust include ownership or control which would satisfy any of conditions 1 to 4. If someone other than the trustee has the right to exercise significant influence or control over the trust, he should be entered in the PSC Register as satisfying condition 5.

Identifying PSCs

If a company is wholly owned by another legal entity and that other legal entity is relevant and registrable, the legal entity’s details must be entered in the PSC Register. A legal entity is relevant (a RLE) if it is (1) required to keep its own PSC Register; (2) it is subject to DTR5; or (3) it has voting shares listed on a regulated market in the UK or EEA or on specified markets in Switzerland, the USA, Japan or Israel. A RLE is registrable if it is the direct owner of the company.

An indirect holding of shares or rights is where a legal entity holds the shares or rights and the individual has a majority stake in that legal entity or in a legal entity which has a majority stake in that legal entity. A company is not required to look any further up its chain of ownership than its direct owner provided that owner is a RLE.

A person will hold a majority stake if:

• he holds a majority of the voting rights in the legal entity;
• he is a member of the legal entity and has the right to appoint or remove a majority of its board of directors;
• he is a member of the legal entity and control a majority of the voting rights by agreement with other shareholders or members; or
• he has the right to exercise or actually exercises dominant influence or control over the legal entity.

In figure 1 below, Company A will enter Company B as its RLE in its PSC Register and Company B will enter Person 1 in its PSC Register.

In figure 2 below, Company A will enter Company B as its RLE in its PSC Register and Company B will enter Person 2 in its PSC Register.

In figure 3 below, Company A will enter Company B as its RLE in its PSC Register and Company B will enter Person 2 in its PSC Register. Where Person 2 informs Company A of his indirect holding of shares through Overseas Company and Company B, Company A will enter Company B as its RLE and enter Person 2 as a PSC as a direct and indirect holder of all the shares in Company A. Failure to inform an indirect holding is a criminal offence.

Gathering information

A company must take reasonable steps to identify a PSC or a registrable RLE. Failure to do so is a criminal offence. This means reviewing documents and arrangements already known, such as shareholder registers, articles of association, any shareholders agreements or other similar arrangements. If an individual satisfies any of conditions 1 to 3 above, the company does not need to go on to consider if that person satisfies condition 4 or 5. Information on a PSC needs to be confirmed by the PSC before being entered in the PSC Register.

Information of RLEs needs to be accurate but need not be confirmed by the RLE. If the company cannot immediately identify its PSC or RLE, it must serve a notice on the PSC or RLE requiring the information. It is a criminal offence not to issue a notice. A notice must be replied to within one month.

Entries in the PSC Register

There is specified wording to be included in the PSC Register. The PSC Register can never be empty. If there are no PSCs or RLEs, that must be entered in the Register. If the Company is waiting for information, that must be entered in the Register.

Details to be entered for PSCs are:

• Full name
• Nationality
• Country, state or part of the UK where the PSC usually lives
• Service address
• Residential address (not on the public register)
• Date became a PSC
• Which of the PSC conditions are satisfied and extent of control (where ownership or voting rights conditions are satisfied there are specified bands to notify the extent (ie over 25% up to 50%; over 50% but less than 75%; and 75% or more).
• Any restrictions on disclosing the PSC’s information

Details to be entered for RLEs are:

• 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 RLE;
• Which of the five conditions for being a PSC it satisfies (using the required wording).

Public information

A company can keep its PSC Register at its registered office or at another address notified to Companies House. Any person can request access to inspect the Register free of charge, or request a copy of the Register for which a company can charge a small fee. A PSC’s residential address must not be disclosed. Identical information will be available from the central registry at Companies House except that the date of birth of the PSC will contain the month and year data only. Companies can choose to keep their own register at Companies House.

Companies House make all information available to law enforcement agencies and PSC residential address details to credit reference agencies and certain public authorities. A company can apply to have a PSC’s information suppressed where there is a serious risk of violence or intimidation. PSC information would still be available to law enforcement agencies.

Application to limited liability partnerships

The PSC regime will also apply to UK limited liability partnerships (LLPs). The regime will apply in a similar way as it does to companies.

An individual will be a PSC in relation to an LLP by satisfying any one or more of the following conditions:

1. Directly or indirectly holds more than 25% of the surplus assets on a winding up; 
2. Directly or indirectly holds more than 25% of the voting rights;
3. Directly or indirectly holds the right to appoint or remove a majority of those involved in management; 
4. Has the right to exercise, or actually exercises significant influence or control;
5. Has the right to exercise, or actually exercises, significant influence or control over the activities of a trust or firm which is not a legal entity, but would itself be a PSC under any of conditions 1 to 4 if it was an individual.

LLPs will need to review LLP Agreements and any other similar arrangements to determine if any of the conditions are satisfied. If any relevant agreements do not specify the voting rights of members, they should be treated as being split equally between the members. There is similar separate statutory guidance on the meaning of significant influence or control in relation to LLPs.

Further guidance

The government has published non statutory guidance which contains further detail for companies and LLPs to understand the obligations under the PSC Regime. This includes the specified wording for the PSC Register and sample notices to be issued to obtain PSC information. The guidance can be accessed here:
https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/500384/15_Feb_NON-STATUTORY_GUIDANCE_FOR_COMPANIES_AND_LLPS__V3_.pdf.

For further advice and guidance on the new regime please contact your usual Corporate adviser at Fox Williams.