From 6 April 2016 most UK companies and LLPs are required to keep a new statutory register of persons with significant control (“PSC”). This register will be available for public inspection, be freely available and will (in time) be searchable online. The register must be populated with information about all current persons with significant control of the Company as of 6 April 2016.
From 30 June 2016 the information contained on a company/LLP’s PSC register will be filed at Companies House as part of the “Annual Confirmation Statement”, which is replacing the Annual Return.
The changes are being implemented by insertion of a new part 21A and Schedules 1A and 1B to the Companies Act 2006.
By introducing these changes, the Government hopes to increase transparency of corporate structures to help combat money laundering, terrorist financing and tax evasion. Failure to comply with the new rules can, in certain situations, cause shareholders/members to be divested of their interest in shares/partnerships.
Who will be affected? All UK public and private companies and UK LLPs (other than those already required to disclose information about ownership of shares under the Disclosure and Transparency Rules) will need to keep a register of all persons who have ‘significant control’ over that company, regardless of that person’s own nationality or place of residence. Foreign entities operating in the UK are not required to keep a PSC Register. Who is a person with ‘significant control’? In relation to a company, a person with significant control is anyone who meets at least one of five specified conditions: Condition 1: Condition 2: Condition 3: Condition 4: Condition 5: Note: conditions 1-3 are slightly different for LLPs and you should contact us if you required any further information. The new provisions of the Companies Act 2006 contain detailed provisions as to the application of the specified conditions, and in particular specified conditions 4 and 5 which rely on the concept of significant influence or control (“SIOC”). The Government has supplemented this with extensive guidance, some of which is “statutory guidance” and must therefore be taken into account when applying the new provisions of the Companies Act 2006. The latest versions of the Government Guidance can be found here. The Government guidance (currently in draft but expected to be ratified) sets out a number of safe harbours which will not normally amount to having SIOC, including: Note on LLPs: LLPs are likely to face a greater challenge than companies in determining which individuals have significant influence or control as there are not likely to be clearly defined ‘shares’ by which ownership or votes can be determined. Different categories of LLP members are often entitled to vote on different matters, which complicates the assessment of voting power. Since LLPs will be required to annually file information at Companies House in respect of the PSC Register, this may mean that previously confidential ownership and control arrangements between members may be exposed to the public. What are the key obligations of UK companies and PSCs? Companies subject to the PSC regime are required to: Companies are under a duty to take reasonable steps to find out if anyone is a registrable person or a registrable relevant legal entity in relation to it, and to compile the information for the PSC Register. This includes, but is not limited to, an obligation to give a notice to anyone whom the company knows or has reasonable cause to believe to be registrable, unless the company already has the requisite information. If the company fails to take reasonable steps to investigate registrable persons, the company and every officer in default could be liable to a fine and/or two years of imprisonment. Individuals who are PSC’s are themselves under a duty to notify the company of their status and to respond to any notices from the company seeking confirmation of their status. What if PSCs refuse or fail to comply? A PSC (or its officers if a legal entity) is committing a criminal offence if they fail to comply with a notice or knowingly or recklessly make false statements in reply to a notice, punishable with fines and up to two years of imprisonment. In the event of non-compliance by a person with ‘significant control’, the company will send a warning notice, after which the company will be able to impose restrictions. These restrictions can include disenfranchising shares, preventing the transfer of shares and preventing the exercise of voting rights or other share rights. The draft regulations propose that where restrictions are then subsequently lifted, any benefit or right which arose during a restricted period cannot then be invoked or enjoyed. What must be recorded on the PSC Register? Where a company/LLP is subject to the PSC register rules (Company A), and it has a member that is a body corporate/firm and itself subject to the PSC registration requirement (Company B), then Company B is a Relevant Legal Entity (“RLE”) and can be entered onto Company A’s PSC register without Company A taking steps to establish the individuals ultimately in control of Company B. This is to avoid duplication in the PSC registers, as someone wishing to identify the PSCs of Company A can in turn look to Company B’s PSC register. If the Company is still taking steps to obtain or verify information pertaining to PSCs/RLE’s or if the Company believes that there are no registrable PSCs/RLEs then the register must record this. What steps should Companies be taking now? Company officers should be reviewing their company registers of members and articles of association to identity shareholdings over 25%, blocks of direct or indirect voting rights over 25% and anyone with rights to appoint or remove the majority of the board of directors. Company officers should also familiarise themselves with the Government guidance concerning the fourth and fifth specified conditions in order to determine whether either of them apply to individuals connected to the company, and should be prepared to send notices to persons they believe may be PSCs if the company does not have sufficient information to include an entry on the PSC register. If you have any concerns as to the application of the rules, or would like to discuss more complicated corporate structures/arrangements then please do not hesitate to contact us. PLEASE NOTE: this briefing note contains information about current legal issues and is only intended as a general statement of the law – it does not give legal advice. No action should be taken in reliance on this note without specific legal advice. For further information please contact:
directly or indirectly holds more than 25% of the shares in the company;
directly or indirectly holds more than 25% of voting rights in the company;
directly or indirectly holds the right to appoint or remove a majority of the board of directors of the company;
has the right to exercise, or actually exercises, ‘significant influence or control’ over the company; or
has the right to exercise, or actually exercises, ‘significant influence or control’ over the activities of a trust or firm (including non-legal entities), where the trustees of that trust or members of that firm themselves meet one of the specified conditions above, or would do so if they were individuals.
Individual
Relevant legal entity (“RLE”)
Name
Corporate or firm name
Service address
Registered or principal office
Country or state of usual residence (or part of the UK)
Legal form and governing law
Nationality
Company registry and registration number, if applicable
Date of birth
Date of becoming a registrable RLE
Usual residential address
Nature of the RLE’s control
Date of becoming a registrable PSC
Nature of the PSC’s control (this must be entered in a prescribed form)
Any restrictions on using or disclosing the PSC’s particulars in accordance with statutory provisions
Colin Winter
Partner, Corporate