One of the reforms to UK company law introduced by the Small Business, Enterprise and Employment Act 2015 (the "Act") is the requirement (subject to exceptions mentioned below) for details of individuals who ultimately own or control more than 25% of a UK company's shares or voting rights, or who otherwise exercise significant influence or control over a UK company or its management, to be included on a private and public register called the PSC (or "persons with significant control") Register.
The Act contains the framework of the new regime, with much of the detail to be provided by secondary legislation. One set of draft regulations ("Regulations") has so far been published, together with a consultation on their content, and further regulations and statutory and non-statutory guidance on the PSC Register are anticipated.
The new regime will apply to all UK companies, other than those subject to the disclosure requirements of DTR 5 and (as proposed by the Regulations) companies with voting shares admitted to trading on a regulated stock market in any EEA state. Companies will be required to start keeping a PSC Register from April 2016, and from 30 June 2016 PSC information will also need to be filed at Companies House as part of companies' annual confirmation statements (currently known as annual returns). The Government has also announced that it intends to issue further regulations extending the provisions of the Act to LLPs. Corporations sole, governments or government departments, international organisations and local authorities will be treated under the PSC legislation as if they were individuals.
Who is a person with significant control (PSC)?
An individual with significant control over a UK company will meet one or more of the following five conditions:
- directly or indirectly owns more than 25% of shares in the company;
- directly or indirectly holds more than 25% of the voting rights in the company;
- directly or indirectly has the power to appoint or remove the majority of the board of directors of the company;
- otherwise has the right to exercise or actually exercises significant influence or control over the company;
- has the right to exercise or actually exercises significant influence or control over a trust or firm that is not a legal entity, which in turn satisfies any of the first four conditions over the company.
What about legal entities with significant control?
Where a legal entity rather than an individual meets one or more of the above conditions, and that legal entity is itself either required to maintain a PSC Register or is exempt from doing so as it has to comply with DTR 5 (and so already has to make information about its major shareholders public), then that legal entity will be a "relevant legal entity" (RLE) for the UK company in question and may need to be entered onto the PSC Register, although not all relevant RLEs will need to be recorded on that UK company's PSC Register.
The consultation on the Regulations provides an example of three UK registered companies. Company A is wholly owned by Company B and Company B is wholly owned by Company C. Company B and Company C each keep a PSC Register and own more than 25% of the share capital of Company A (Company B directly and Company C indirectly). Accordingly, both are RLEs as far as Company A is concerned, but to make it easier for companies to maintain PSC Registers and to avoid duplication of information, Company A would only need to note Company B in its PSC Register and not Company C, as observers who wished to delve further could inspect Company B's PSC Register to identify Company C. In this example, for the purposes of Company A, Company B would be a registrable RLE and Company C a non-registrable RLE.
The Act also contains anti-avoidance provisions to avoid the insertion of a legal entity outside the scope of the new rules (such as a foreign company) into an ownership chain frustrating the purpose of this new regime. In this instance, a UK company compiling its PSC Register would be required to "look through" the foreign company until it identified either a registrable RLE or a PSC (or established that it had none).
How are PSCs/RLEs identified?
A company must take reasonable steps to find out if anyone is a PSC or registrable RLE in relation to it, and to identify them if that is the case.
A company must give a notice to anyone it knows or has reasonable cause to believe to be registrable, unless the company has already been informed of the person's status and been given the requisite information. A company may also give a notice to a person if it knows or has reasonable cause to believe that the person either knows the identity of someone that is registrable, or knows the identity of someone likely to have that knowledge.
The Act sets out detailed requirements for these notices and failure by an individual or legal entity to respond to a company's enquiries will entitle the company to disenfranchise, and impose other restrictions on, any shares held by them. The Regulations set out the proposed details of this procedure.
A PSC or registrable RLE is also under an obligation to provide the company with the relevant details if it knows, or ought reasonably to know, that it is a PSC or RLE, it is not already on the register, and it has not received a notice from the company within one month after becoming one.
There are criminal sanctions for companies and their officers and the relevant PSCs/RLEs for non-compliance with these duties.
What has to be recorded on the PSC Register?
The details required to be recorded on the PSC Register will vary depending on whether they relate to a PSC or RLE. The Government is currently consulting on the form which some of the details must take, and:
- proposes that the nature of control be recorded in the PSC Register by stating which of the five conditions for being registrable have been met and, where the condition relates to the holding of shares or voting rights, that the extent of the holding must be disclosed by selecting one of three broad bands (more than 25% up to 50%; more than 50% up to 75%; or 75% or more);
- notes that there will be situations where a company has no PSC/RLE or does not yet have the details confirmed, and proposes that a company should make a note in the PSC Register where it:
- has established that it has no PSCs or registrable RLEs;
- has reason to believe there are PSCs but has not been able to identify them or get their details confirmed;
- has issued a formal request for information and the request has not been complied with within the set timescale;
- has placed restrictions on the interest in it held by a person or entity that has not complied with a formal request for information;
- does not possess information that can be placed on the PSC Register and cannot make any other note as to the progress of its investigation;
- proposes that there be a protection regime enabling some or all of the information on the PSC Register to be withheld, modelled on the existing regime for protection of directors' residential addresses.
The company must also keep the information recorded on the PSC Register current. If it knows, or has reasonable cause to believe, that a relevant change has occurred, it must give a notice to the PSC/RLE as soon as reasonably practicable (unless it has already been informed of the change). Equally, the PSC/RLE is also obliged to keep the information current and must notify the company of any changes to its status or the prescribed particulars on the PSC Register.
Where is the PSC Register kept?
A company will need to keep the PSC Register at its registered office (or other inspection address). This requirement will however be subject to the option that companies will have from June 2016 to elect to keep their PSC Register (and other statutory registers) at Companies House. In addition to keeping this "private" PSC Register (wherever located), the information on it must also be filed with Companies House annually as part of the new annual confirmation certificate, and implementation of the EU's Fourth Money Laundering Directive in 2017 will require this annual public statement to be replaced with an obligation to keep the public register at Companies House up-to-date at all times.
The provisions governing inspection of the register largely reflect the current process for accessing copies of a company's register of members.
What are the next steps?
The Government has undertaken to produce guidance to help companies and their shareholders to understand their obligations and it is currently unclear how all the relevant provisions will be implemented. Guidance on ascertaining whether an individual is a person who will be regarded as exercising significant influence or control is not expected to be published until the autumn, making it difficult at present to consider fully the impact these provisions of the Act will have. However, it would be advisable for companies now to start considering and putting in place the procedures necessary to ensure they take reasonable steps to identify their PSCs and RLEs from April 2016 to assist in avoiding committing a criminal offence.