From 6 April 2016, UK companies (other than those that are listed or quoted on the Main Market of the LSE, ISDX, AIM, a regulated market in another EEA state or on certain markets in the USA, Switzerland, Israel or Japan) need to record details of their ultimate beneficial owners and controllers. From 30 June 2016, that information will need to be filed on the public register at Companies House with the new annual confirmation statement. UK LLPs and UK-incorporated ‘European Companies’ (an EU form of public company also known as Societas Europaea or SEs) are also subject to these requirements.
Companies, LLPs and SEs need to ensure that they are compliant. Non-compliance is a criminal offence by a company, LLP or SE (and its directors or designated members, as applicable).
From the point of view of individuals who are PSCs, (see below), and who fail to provide the required information to the company, their interest in the company may be frozen (meaning that they would be unable to receive dividends or transfer the shares), and they will have committed a criminal offence.
This note primarily considers the requirements as they will apply to companies (including SEs), rather than LLPs, (although we do touch on them below). In many cases, companies are likely to require professional advice to be sure they are compliant. Companies with more complex ownership structures – particularly where trusts or partnerships or overseas companies are involved – will need to take particular care.
The criteria for being a PSC in relation to a company are broadly that, whether directly or indirectly, a person:
A legal entity that would fulfil one or more of the criteria for being a PSC if it were a natural person, and which is itself either required to keep a PSC register, (eg a UK company, UK LLP or UK SE), or is exempt from that requirement by virtue of being a listed or quoted company, is known as a ‘relevant legal entity’ (an RLE). An RLE can be entered in a company’s register of members in the same way as a PSC can.
Shares and rights are regarded as being held by a person (or an RLE) ‘indirectly’ where they are held by that person or RLE through one or more legal entities (that are not RLEs), and the relevant person or RLE either has a majority stake in the entity that holds the share or right, or the share or right is held through a chain of legal entities, each of which has a majority stake in the entity beneath it and the last of which has a majority stake in the entity that holds the share or right. Direct and indirect interests must be aggregated for the purposes of determining the extent of a person’s control.
Where the shares or voting rights held by two or more people are subject to a ‘joint arrangement’ (ie an arrangement between them that they will exercise rights jointly in a way that is pre-determined, whether or not legally binding), each of them will be regarded as holding their combined interest for the purpose of working out whether they are a PSC. An ‘arrangement’ for these purposes need not be formal and can include a ‘convention, custom or practice’, although one-off agreements to exercise rights in a particular way, for example, to exercise voting rights to defeat a particular company resolution, are unlikely to be caught.
From 6 April, the relevant details of PSCs and RLEs have to be included in a new statutory register, known as the ‘PSC register’. The PSC register sits alongside the other statutory registers that the company maintains (eg the register of members and the register of directors).
Companies House has produced a short video to help companies in identifying PSCs. The video can be accessed here.
The PSC register must record details of:
Broadly, the register must:
In fact, there are over 30 specific forms of statement that might need to be entered in the register, depending on the circumstances!
Subject to very limited exceptions, (namely where there is a significant risk of a person being subjected to violence or intimidation and an application is made by or on that person’s behalf) and, with the redaction of some personal data, the information will be included on the public register at Companies House.
Companies House has published guidance about the circumstances in which disclosure may be restricted and how to apply for this protection. This guidance can be found here.
In practice, while in many cases it may be relatively straightforward to work out who owns or controls more than 25 per cent of the shares or voting rights of a company, or who can appoint or remove a majority of the directors, it may be more difficult to work out if someone otherwise has the right to exercise, or actually exercises, significant influence or control over a company (‘significant influence’ and ‘control’ are different things for these purposes).
The Government has published statutory guidance (currently before Parliament for approval), that must be referred to in determining whether or not a person exercises, or has the right to exercise, ‘significant influence or control’ and what is meant by that expression. The guidance includes a non-exhaustive list of roles and relationships that will not, of themselves, result in a person being considered to exercise significant influence or control. That guidance, together with general guidance for companies and owners to explain the new duties, can be found here.
The guidance states:
‘Where a person can direct the activities of a company, trust or firm, this would be indicative of ‘control’.
Where a person can ensure that a company, trust or firm generally adopts the activities which they desire, this would be indicative of ‘significant influence’.
The ‘control’ and ‘significant influence’ do not have to be exercised by a person with a view to gaining economic benefits from the policies or activities of the company, trust or firm.’
An example of someone who has a right to exercise significant influence or control over a company might be a person with absolute decision or veto rights over key matters relating to the company’s business. Examples of someone actually exercising significant influence or control, (without any formal legal right to do so), might include:
Whilst the guidance is helpful in understanding some of the parameters of the concepts of ‘significant influence’ and ‘control’, it is clear that each situation will be different and will need to be considered in light of all relevant facts. As well as considering any legal agreements (eg shareholders’ agreements), companies will need to think about the background, surrounding circumstances and what happens in practice. This may not be an easy task.
The requirement to maintain a PSC Register will apply to LLPs in broadly the same way as to companies. The criteria for determining whether someone is a PSC (or RLE) will be slightly different, being satisfied where a person or legal entity, directly or indirectly:
Draft statutory guidance on the concepts of ‘significant influence’ and ‘control’ in the context of LLPs can be found here.
The detail of the legal requirements is set out in section 21A of the Companies Act 2006 (inserted by the Small Business Enterprise and Employment Act 2015), and supplemented by statutory regulations - the Register of People with Significant Control Regulations 2016, the Limited Liability Partnerships (Register of People with Significant Control) Regulations 2016 and the European Public Limited-Liability Company (Register of People with Significant Control) Regulations 2016.
This article was prepared by James Went and Angela Ragnauth.