Main menu

Liverpool:

+44 (0)151 600 3000

Manchester:

+44 (0)161 836 8800

Preston:

+44 (0)1772 823 921

Search form

Search form

A B C D E F G H I J K L M N O P R S T V W Y

Persons with Significant Control - an overview of the new regime

Persons with Significant Control - an overview of the new regime

Wednesday 6th April 2016

Share this article:

Corporate Matters - Special Issue 

From 6 April 2016 the new Persons with Significant Control (PSC) regime means most UK companies are required to maintain a PSC register. Failure to do so is a criminal offence. 
 
From 30 June 2016, companies will need to supply Companies House with the information on their PSC register along with the company's confirmation statement, which will replace the annual return. From that date, new companies will need to supply this information on incorporation so that it can be made publicly available.
 

1.  Who is required to keep a PSC Register?

Not all UK companies will need to maintain a PSC register. Companies to which Chapter 5 of the Disclosure and Transparency Rules (Chapter 5) applies will not be subject to the new requirements, so UK companies with shares listed on the Main Market of the London Stock Exchange, AIM and the ISDX Growth Market will be exempt. UK companies with voting shares admitted to trading on another EEA regulated market or on specified markets in Switzerland, the US, Japan and Israel will also be exempt. While additional regulations apply the regime to UK-incorporated limited liability partnerships (LLPs) and Societas Europaea, this note focuses on how the regime applies to UK companies.
 

2.  Identifying PSCs

Only an individual can be a PSC. However, where the owner or controller of a UK company is a legal entity, such as a company or LLP, rather than an individual, that legal entity will need to be put on the company's PSC register if it is a registrable relevant legal entity (RRLE) in relation to the company.
 
The tests for identifying PSCs or RRLEs are the same:
 
  • Directly or indirectly holding more than 25% of the shares in the company;
     
  • Directly or indirectly holding more than 25% of the voting rights in the company;
     
  • Directly or indirectly holding the right to appoint or remove a majority of the board of directors of the company;
     
  • Otherwise having the right to exercise, or actually exercising, significant influence or control over the company; or
     
  • Having the right to exercise, or actually exercising, significant influence or control over an arrangement such as a trust, which is not a legal entity but which meets any of the above conditions in relation to the company, or would do so if it were an individual.

3.  Exercising significant influence or control

Statutory guidance (see below) provides greater information and examples on this point. However, if a person can ensure that the company, trust or firm generally acts as they want, this is indicative of significant influence. If they are able to direct the activities, this would be indicative of control.
 
Right to exercise significant influence or control
 
This is a right which if exercised would lead to the actual exercise of significant influence or control. If someone has such a right, then they will need to be entered in the PSC register, even if they have not exercised the right as yet. Examples are where a person has:
 
  • Absolute decision rights over decisions relating to the running of the business of the company, e.g. adopting or amending a business plan, changing the nature of its business, or making additional borrowings; or
     
  • Absolute veto rights over decisions relating to the running of the business, e.g. adopting or amending a business plan, or making additional borrowings,
and “absolute” means that a person has such rights without reference to or collaboration with anyone else.
 
However, if a person holds absolute veto rights in relation to fundamental matters for the purpose of minority shareholder protection, e.g. in relation to changing the articles of association or issuing shares etc., this is unlikely on its own to be either significant influence or control. 
 
Actually exercises significant influence or control

When deciding whether a person actually exercises significant influence or control over a company, all relationships that such person has with the company or those who manage it must be taken into account to see whether the cumulative effect of such relationships means they exercise significant influence or control. Examples are:
 
  • Where a person is significantly involved in the management and direction of the company, e.g. where they regularly advise the board and such advice influences decisions which are made. This will include shadow directors and could also include consultants; or
     
  • Where a person’s recommendations are always or almost always followed by the shareholders holding the majority of voting rights in the company when they decide how to vote, e.g. where a founder no longer holds a majority stake but his advice is always or almost always followed as to how to vote.
“Excepted roles”
 
The statutory guidance provides details of those roles or relationships which would not in themselves automatically mean a person has a right to exercise or actually exercises significant influence or control over a company. Examples include a person who:
 
  • Provides advice or direction in a personal capacity, e.g. lawyers or accountants or management consultant;
     
  • Deals with the company under a third party commercial or financial agreement, e.g. a supplier, customer or lender; or
     
  • Is acting under an enactment such as a regulator, liquidator or receiver; or
     
  • Is a director of the company, including the managing director, a sole director or a non-executive director/chairman who holds a casting vote.
Even if a person falls within a category of excepted roles, it is key to note that they may still have a right to exercise or actually exercise significant influence or control, e.g. where the role they undertake includes elements which exceed the role as it is usually understood or exercised, or it forms one of several opportunities which a person has to exercise significant influence or control.
 
Trusts and firms

Much of the guidance above in relation to significant influence or control over a company also applies to trusts and firms. However, it should be noted that a person has the right to direct or influence the running of the activities of a trust or firm if, e.g., they have the right to appoint or remove any of the trustees or partners, to direct the distribution of assets or funds, direct investment decisions, amend the trust or partnership deed, or revoke the trust or terminate the partnership. A person is likely to actually exercise significant influence or control over a trust or firm if they are regularly involved in the running of the trust or firm, e.g. they give instructions which are generally followed. An active settlor or beneficiary of a trust may therefore exercise significant influence or control.
 

4. Recording information on the PSC Register

A company's PSC register cannot be empty as it must always include information about its PSCs or RRLEs (even where the company knows or reasonably believes that there are none), or an update on the company's status. Where a company is taking reasonable steps to identify its PSCs or RRLEs but has not yet identified them, that fact should be entered on the PSC register. 
 
Regulations 10 to 17 of the 2016 Regulations and Annex 2 to the BIS non-statutory guidance (available here) set out the precise wording to be included, depending on the circumstances. This official wording also needs to be used when the company files information on the central public register at Companies House and must be included with the required relevant information about individual PSCs and RRLEs in the company's PSC register.
 
Where a company has taken all reasonable steps and is confident that no individuals or legal entities meet any of the specified conditions, so that the company has no PSCs or RRLEs, that fact must be recorded on its PSC register.
 
PSCs
 
The information to be entered on the company’s PSC register for a PSC comprises the following on the individual:
 
  • Name;
     
  • Date of birth;
     
  • Nationality;
     
  • Country or state or part of the UK where the PSC usually lives;
     
  • Their service address;
     
  • Their usual residential address;
     
  • The date the individual became a PSC, which will be 6 April 2016 for existing companies compiling their PSC register for the first time;
     
  • The specific condition or conditions for being a PSC that the individual meets with a quantification of their interest where relevant;
     
  • Any restrictions on disclosing the PSC’s information that are in place.
RRLEs
 
Where the company is required to record information on a RRLE on its PSC register it must enter the following on the entity:
 
  • Name;
     
  • Registered address or principal office;
     
  • The entity's legal form and governing law;
     
  • The register that the entity appears in (with details of the state) and its registration number;
     
  • The date that the entity became an RRLE in relation to the company, which will be 6 April 2016 for existing companies compiling their PSC register for the first time;
     
  • The specific condition or conditions for being a PSC that the RRLE meets, with a quantification of its interest.
Specific Conditions
 
For each of the PSCs and/or RRLEs, where one or more of those conditions relates to share ownership or voting rights (relevant to the first, second and the fifth conditions), it must be made clear in the whether the PSC or RRLE holds:
 
  • More than 25% but not more than 50%;
  • More than 50% but less than 75%; or 
  • 75% or more;

of the shares or voting rights in the company.

However, where one of the first three conditions is met (through a shareholding, voting rights, or rights to appoint or remove a majority of the board), the company will not also have to record if and how the person or RRLE meets the fourth condition relating to significant influence or control over the company.
 

5. Identifying PSCs

Companies have a duty to take reasonable steps to identify their PSCs and RRLEs. Failure to do so is a criminal offence, which can be committed both by the company and any officer who is in default. The maximum penalty is a prison term of up to two years, a fine, or both.

PSCs and RRLEs also have to notify the company of their status within one month of the relevant person or legal entity becoming a PSC or RRLE.  Again, failure to do so is a criminal offence.

6. Duty to update the register

Both companies and PSCs, whether individuals or RRLEs, have a duty to keep the company's PSC register up-to-date. As a result, if the company becomes aware that circumstances have changed and information on the PSC register is incorrect.

7. Accessing Information

From 6 April 2016, companies will need to keep their PSC register accessible at their registered office or at another location notified to Companies House.   From 30 June 2016, private companies will be able to elect to maintain their PSC register at Companies House only.

For a private company electing to hold its PSC register at Companies House, it should be aware that the full date of birth of an individual PSC will be recorded on the central public register and the information on that PSC register must be kept up-to-date. Changes must also be noted as they occur and the company cannot wait for the annual confirmation statement to notify changes as companies maintaining their own PSC register at their registered office or alternative location can do. Failure to note changes as they occur is a criminal offence.

8. Inspection Fees

Companies maintaining their own PSC register must make it available for inspection at no charge. Copies of it can be requested for a charge of £12 per request, regardless of how many parts of the PSC register have to be copied.

As with requests to inspect the register of members, anyone applying to inspect or have a copy of the PSC register must provide their name and address, and specify their purpose in seeking the information. The company must respond to the request within five working days by either complying with it or, if the company believes the request is not being made for a proper purpose, it can apply to the court for a determination as to whether or not the company should comply.

9. Further Guidance

Please note that this is not an exhaustive guidance note on the PSC regime. It is intended to provide a brief and informative overview of the PSC regime only and is not intended to provide legal advice and parties should seek specific advice on their own circumstances.  

The PSC regime itself is quite complex and to assist in its interpretation the government has released both statutory and non-statutory guidance. The non-statutory guidance (in summary and long form) offers detailed guidance and useful examples to cover the more common scenarios and can be found here
 
If you have not already been in contact with us in relation to the PSC regime and you are concerned about your position, please do not hesitate to contact your usual contact within the Corporate team or Adrian Rogers.
 
Partner, Corporate
Tel: 0151 600 3127