The UK People with Significant Control (“PSC”) regime was introduced in 2016 to enhance the transparency of ultimate (beneficial) ownership of UK companies. The goals of the register are to promote good corporate behaviour and to deter illicit activity.
In 2019, following a post-implementation review, the Government concluded that the objectives of the PSC regulations are being (or are in the process of being) met and that the costs to business have been proportionate and in line with the original estimates. However, the regulations can be tricky to apply in practice, and the review did highlight that there are concerns over the reliability of the information on the PSC register. The Government has said it is considering and addressing this as part of the wider review of the corporate transparency and register reform.
In the meantime, reliability may improve as a result of the new Fifth Anti-Money Laundering Directive requirement (which came into force on 10 January 2020) for certain ‘obliged entities’ to report to Companies House any discrepancies between the information that they hold about a beneficial owner and information on the People with Significant Control register. This reporting obligation applies when setting up new business relationships, and extends to banks, credit reference agencies, financial institutions, estate agents and accountants (amongst others). So it is no longer just UK companies themselves (and their PSCs) that need to understand how the regulations apply to them; obliged entities will also need to know how the PSC regime works.
What is a PSC register?
- Most UK incorporated companies and LLPs are required to keep a register of 'people with significant control' over them.
- Those companies are also required to provide and update this information publicly by filing it at Companies House within 14 days of any changes or additions to its PSC register. At least once a year, as part of the company's confirmation statement, the company is required to confirm that the PSC information contained on the public register is accurate and up to date.
Who needs to keep a PSC register?
- All UK incorporated companies and LLPs need to keep a PSC register except where they are exempt.
- Exempt companies (which are subject to equivalent disclosure requirements through a different means) are those with voting shares admitted to trading on a regulated market in the UK or EEA (other than the UK) or on the following specified markets (see table on page 2).
- From 24 July 2017 companies with shares listed on UK secondary markets (such as the Alternative Investment Market and NEX Exchange), which were previously exempt, are also required to maintain a PSC register and comply with the PSC register requirements.
- Overseas entities do not have to keep PSC registers, but may have similar transparency provisions in their relevant jurisdiction. In particular, the EU introduced similar measures in the Fourth Anti-Money Laundering Directive which Member States were required to have implemented by 26 June 2017.
- UK subsidiaries of exempt entities are required to keep a PSC register where they are not themselves exempt.
What needs to go on the PSC register?
- Companies need to identify if there are any PSCs (who are, by definition, individuals) in relation to them or alternatively, relevant legal entities (RLEs).
An individual will be a PSC of a company if he or she satisfies one or more of the following conditions in relation to the company:
- Condition 1 – holds, directly or indirectly, more than 25% (in nominal value) of the share capital of the company.
- Condition 2 – holds, directly or indirectly, more than 25% of the voting rights in the company.
- Condition 3 – holds the right, directly or indirectly, to appoint or remove a majority of the board of directors of the company.
- Condition 4 – has the right to exercise, or actually exercises, significant influence or control over the company.
- Condition 5 – has the right to exercise, or actually exercises, significant influence or control over the activities of a trust or firm (that is not a legal entity) which would itself satisfy any of Conditions 1 to 4 in relation to the company if it were an individual.
RLEs are corporates (whether UK or international) which:
- would be PSCs if they were individuals (i.e. fulfil one or more of Conditions 1 to 5); and
- are subject to their own disclosure requirements either through having to keep a PSC register themselves or by having listed shares on the UK, EEA or certain listed markets - see table on page 3.
- Accordingly, all UK companies with a 25% or more interest in another UK company will be an RLE in relation to that company, whereas overseas companies will only be RLEs where they have listed shares on the UK, EEA or specified markets.
- LLPs can be RLEs but limited partnerships cannot (but companies which are general partners of limited partnerships can be).
Completing the register
To identify a registrable PSC or RLE, starting with the UK company whose PSC register you are investigating, identify any person or company with a 25% or more interest in the UK company:
- If this is a UK company, record this as your RLE and more distant ownership of that RLE will not be registrable. Note there could be more than one RLE and each could satisfy more than one Condition.
- If it is an overseas company, is it listed on one of the specified markets? If yes, it can be registered as an RLE and more distant ownership of that RLE will not be registrable. If not, it is not an RLE and you need to continue up the chain asking whether any other entity has a "majority stake" in that overseas company - this can also include an entity or individual who effectively controls the company even if they do not personally hold a majority of the shares.
- Continue until you reach an individual or RLE with a "majority stake", if any.
- A company may have more than one RLE or PSC and each shareholder satisfying one or more of the Conditions must be noted. If an entity satisfies any of Conditions 1-3, it is not necessary to record that that entity also satisfies Condition 4 or 5.
- A trustee of a trust will usually be a PSC where that trust has the required shareholding/level of control in a company directly or indirectly.
- A beneficiary may be a PSC in addition to the trustee if that beneficiary, as a matter of fact, exercises significant influence or control over the trust (Condition 5).
- Where a trustee is merely a nominee, it is only the beneficiary who is a registrable PSC.
- Limited partnerships which do not have a separate legal personality (such as a UK limited partnership) cannot be a RLE.
- A General Partner (GP) of a limited partnership will usually fulfil one of Conditions 1-5. Therefore, if the GP is an individual or a RLE, it will be registrable.
- A principal of a corporate GP which is not itself a RLE (for example, because it is an unlisted overseas entity) may be a PSC if he or she owns or controls a majority of the GP interests or has the right to exercise a dominant influence over the GP.
- Limited partners are not usually PSCs.
Where the UK company is part of a group of companies, only the first RLE in a particular chain of control, which directly or indirectly meets one of Conditions 1-5, should be recorded on the PSC register.
If after appropriate consideration and investigation a UK company decides that it has no registrable PSCs or RLEs then it is valid to record this in the PSC register - but the company should still keep a register and update this if circumstances change. The PSC register should never be empty.
If a company is still determining whether there are any registrable PSCs or RLEs to go on its register, it will need to record this on the register using set wording required by the legislation.
What does “significant influence or control” mean?
- One of the more nuanced areas that may cause clients concern is the definition of 'significant influence or control' in Conditions 4 and 5.
- The good news is that there are some 'excepted roles' which do not, on their own, amount to significant influence or control, for example, directors acting in a way which is consistent with the ordinary responsibilities of a director.
- The statutory guidance should be consulted for a full analysis.
- Examples given by the statutory guidance of what might constitute a right to exercise significant influence or control include 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 or making additional borrowing from lenders); or
- absolute veto rights over the appointment of the majority of directors.
- Where the PSC regime is not complied with, both the company and its officers (directors and secretary, if any) may be committing an offence with the risk of fines and imprisonment. In England and Wales fines are unlimited and prison sentences can be up to 24 months.
- In certain situations, a company may not have enough information to identify its PSCs or RLEs and, where necessary, companies can send out requests for information. Persons failing to comply with such requests may be committing a criminal offence and are liable to have further steps taken against them if they continue not to comply (such as not being able to exercise voting rights or transfer shares in in the company).
- Individual PSCs are also under a positive obligation to notify companies of their status.
The information contained in this guide is intended to be a general introductory summary of the subject matters covered only. It does not purport to be exhaustive, or to provide legal advice, and should not be used as a substitute for such advice.