UK companies: requirement to keep register of people with significant control

New legislation requires UK companies and LLPs to keep and maintain a register of beneficial ownership revealing those who have significant influence or control over the company.  The register is known as a “register of people with significant control” or “PSC register”.  Publicly traded companies are exempt from the requirement to produce this new register, as they already report this type of information.  Overseas entities do not have to keep PSC registers, but may have similar transparency provisions in their relevant jurisdiction.

When did the law come into force?
The requirement to keep and maintain a PSC register came into force on 6 April 2016.  From 30 June 2016, companies also need to provide the PSC information to Companies House as part of their annual “confirmation statement” (to replace the annual return).  The information will then be available for public inspection in an online, searchable form.  Companies should therefore now be taking active steps to identify people with significant control.

Points to note:

  • The PSC regime is compulsory.  If the PSC regime applies to it, a company must keep a PSC register (even if it does not have any people with significant control).  If a company has no PSCs, this fact must be noted on the register.  Failure to keep a PSC register is a criminal offence on the part of both the company and every officer in default.
  • Companies should now have taken, or at least be in the process of taking, “reasonable steps” (which is what the legislation requires) to identify people with significant control by reviewing all documents and information available to it.  Failure to take such steps is a criminal offence.
  • Unless the required PSC information has been provided to a company already by a PSC directly (or by someone else with the PSC’s knowledge), companies must send notices to those it suspects are PSCs in order to obtain, clarify and confirm their particulars. 

How does a company identify its people with significant control?
A person has significant control over a company if one or more specified conditions are met.  They are that the person has:

  • direct or indirect ownership of more than 25% of a company’s shares;
  • direct or indirect control of more than 25% of a company’s voting rights;
  • a direct or indirect right to appoint or remove a majority of the board of directors;
  • the right to exercise, or actually exercises, significant influence or control over a company; or
  • 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 satisfy any of the four conditions above if it were an individual.

Legal entities (such as companies or LLPs) must generally be put on the PSC register of a subsidiary if they are the first legal entity in the company’s ownership chain; they meet any of the five conditions above; and they hold their own PSC register (or are subject to other equivalent disclosure rights).

Companies must take reasonable steps to identify individuals to be included on the PSC register and also registrable relevant legal entities.

What does “significant influence or control” mean?
The Government has issued amended statutory guidance on the meaning of significant influence or control.  This guidance has been laid in draft before Parliament pending approval.  For companies, a person may hold a right to exercise significant influence or control in a variety of circumstances, including:

  • where a person has absolute decision rights over decisions relating to the running of the business of the company, such as adopting or amending the company’s business plan, changing the nature of the company’s business, making any additional borrowing from lenders, establishing or amending any profit-sharing, share option, bonus or other incentive scheme of any nature for directors or employees, or granting options under a share option or other share based incentive scheme.

In relation to absolute veto rights:

  • where a person has absolute veto rights over decisions such as adopting or amending the company’s business plan, or making any additional borrowing from lenders, this may amount to a right to exercise significant influence or control;
  • where a person holds absolute veto rights for the purposes of protecting minority interests in the company, the guidance indicates that “this is unlikely, on its own, to constitute “significant influence or control” over the company”.

In relation to actual exercise of significant influence or control, an individual may be caught if:

  • he or she is not a member of the board of directors but regularly or consistently directs or influences a significant section of the board; or
  • he or she is a person such as a company founder who no longer holds a significant shareholding but whose recommendations on voting are always or almost always followed by shareholders.

The new requirement to keep and maintain a PSC register has now been in force for two weeks (from 6 April).  Where complete and confirmed information regarding PSCs has not already been entered on the register, companies should at least now be taking “reasonable steps” to identify any persons or relevant legal entities with significant control over them.  Failure to comply is a criminal offence.  If you would like advice on the new PSC regime, please contact James Waddell or your usual contact in the Corporate team.

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