From 6 April 2016, all UK companies and LLPs (excluding publicly listed companies and certain other exempt companies) must maintain a register of those people who have significant control over the company (the “PSC Register”). Whilst for some it will be easy to determine who exercises “significant control”, for those with more complex ownership arrangements (in particularly private equity or venture capital backed companies) it will most likely be the opposite and it may be appropriate to take professional advice on the new regulations*.
The PSC Register is to contain information on individuals (or indeed companies) who exercise significant control over the company and its management. An individual or entity with significant control will meet at least one of the following five conditions:
- directly or indirectly hold more than 25% of the nominal share capital; or
- directly or indirectly control more than 25% of the votes at general meetings; or
- directly or indirectly be able to control the appointment or removal of a majority of the board; or
- actually exercise, or have the right to exercise, significant influence or control over the company; or
- actually exercise or have the right to exercise significant influence or control over any trust or firm (which is not a legal entity) which has significant control (under one of the four conditions above) over the company.
This applies to an individual regardless of their nationality or residency so even off-shore individuals are caught and must be recorded on the PSC register when caught by the new regulations.
Specific provisions apply to indirect interests through chains of entities, interests held through trust arrangements, joint interests and arrangements, nominee arrangements, interests held by way of security, rights enforceable only in certain circumstances and limited partnership interests.
Companies must take reasonable steps to determine whether any individual or any legal entity is caught by the regulations and cause them to be placed on the PSC Register. Failure to take reasonable steps is a criminal offence.
Details of what constitutes reasonable steps can be found in the BIS guidance and where it is not possible for a company to determine the relevant individuals or entities from the documents and information already in its possession, companies are required to serve notices requesting information upon anyone who may have that knowledge. A reciprocal obligation is also placed on the party who has significant control or obtains significant control to let the relevant company know within one month of obtaining that interest. Failure by an individual or legal entity to respond to a company's enquiries will give the company the ability (without a court order) to disenfranchise, and impose other restrictions on, any shares held by them.
A company’s PSC Register will be available for public inspection and will be searchable online via Companies House. The information on the PSC Register must be provided to Companies House from 30 June 2016, as part of the filing of the Confirmation Statement (which has replaced the Annual Return).
The PSC Register will contain certain prescribed information. For individuals on the PSC Register certain personal information will need to be disclosed including name, service address, nationality, date of birth and usual residential address. There are safeguards on how this personal information may be used and disclosed. The regulations set out the various prescribed statements which can be included in a company’s PSC Register. Where a company has identified a PSC then the PSC Register must use one or more of the prescribed statements to record which of the conditions of significant control the registrable person or relevant legal entity meets.
There are criminal penalties for non-compliance with these duties for companies and their officers and the individuals or relevant legal entities concerned. However, for the individuals or relevant legal entities, it is the threat of disenfranchisement which is likely to be the most effective deterrent against non-compliance.
The major issue facing companies and LLPs required to keep the new PSC Register will be putting in place the internal processes necessary to enable them to compile and maintain the register and, where this has not already begun, company should start this process now.