All under (significant) control?

Every company in the UK is required to keep up-to-date statutory registers – these are also often referred to as statutory books, company registers or company books – and to provide access to them.

These registers are the statement at any one time of the ownership structure and control of the company and include:

  • Register of members and share ledger.
  • Register of directors and secretaries.
  • Register of directors' residential addresses.
  • Register of charges.

But from 6th April 2016 it is compulsory for all companies and Limited Liability Partnerships (LLPs) in the UK to maintain another statutory register – the Register of People with Significant Control or PSC register.

This is one of the most controversial changes introduced by the Small Business, Enterprise and Employment Act 2015 and to help you understand it better we have put together the following overview of the rules, what they mean, and a summary of the steps a company needs to make sure it is up-to-date.

What is a PSC register?

A PSC register is designed to record the identities and details of the individuals who are the ultimate beneficial owners and controllers of a UK company, LLP or European Company / Societas Europaea (SE).

UK companies, LLPs and SEs therefore need to keep a PSC register, in addition to existing statutory registers.

Why is the PSC register being introduced?

In 2013 the leaders of the eight most powerful countries in the world (the G8) agreed that the existence of complicated company ownership structures made it hard to tell who owns and controls companies.

They therefore also agreed that it was necessary to improve corporate transparency and as a result the PSC register was introduced in the UK, as one of a number of measures introduced by the Small Business, Enterprise and Employment Act 2015. This Act was designed to improve the transparency of corporate ownership and combat tax evasion and terrorist financing.

The purpose of the PSC register – which will be available for inspection by the public and at Companies House – is therefore to make sure that, when combined with the information on legal ownership already available through the existing statutory registers, individuals with controlling rights or other important beneficial interests in a company can be identified.

The release of the so called ‘Panama Papers’ in April 2016 – the same month as the introduction of the PSC register – has also brought the reasoning behind this change into even sharper focus.

Who does it apply to?

The requirement to keep a PSC register applies to:

  • All companies registered in the UK (including Community Interest Companies)
  • UK Limited Liability Partnerships (LLPs)
  • European Companies or ‘Societas Europaeas’ (SEs), and
  • Alternative Investment Market (AIM) companies, unregistered companies, Scottish limited partnerships and Scottish qualifying general partnerships as of 26th June 2017.

All companies formed before and after the effective dates of 6th April 2016 and 26th June 2017 are affected. Even dormant companies will still need to keep a register of people with significant control.

The new requirement however does not apply to Sole traders, co-operative societies, community benefit societies and Charitable Incorporated Organisations (CIOs). Companies that must comply with Chapter 5 of the Disclosure and Transparency Rules (‘DTR5 Issuer’) are further excluded.

When do the rules apply?

From 6th April 2016 (and from 26th June 2017 for AIM and unregistered companies) every affected company must keep a PSC register.

The register must be also be updated when new people become PSCs and existing PSCs change their details or cease to have significant control over the company. From 26th June 2017 companies are also required to report any changes to their PSC information as they happen. This means where there is a change to PSC information companies and LLPs have 14 days to update their PSC register, and another 14 days to notify Companies House so that the central public register can be updated.

From 30th June 2016 the Annual Return regime was also be replaced with a new ‘Check and Confirm’ regime. This means every affected company must send PSC information annually to Companies House as part of the new ‘Confirmation Statement’.

The confirmation statement can be submitted at any time (and more than once) in any 12 month review period and a new review period of 12 months will be set from the date of the last confirmation statement.

New companies formed or created after 30th June 2016 must also include a statement of initial significant control, detailing people with significant control when the company is formed.

What practically needs to be done?   

In summary an affected company must follow the process below to meet the new requirement to maintain a PSC register:

  • Investigate and confirm – ‘Reasonable steps’ should be taken to ‘identify’ or find out if there are people or legal entities that have ‘significant control’ or influence over the affected company and to confirm their information.
  • Record – the company must record the confirmed information details on their own PSC register.
  • Supply – the information needs to be ‘confirmed’ to Companies House in the affected company’s next Confirmation statement – which will replace the Annual Return from 30th June 2016.
  • Update – When it changes, the information on the company’s PSC register must be updated and then sent to Companies House when the next Confirmation Statement is due.

But what is a person with significant control?

With just a few specific exceptions, only individual people can be PSCs. To be considered a person with significant control (PSC) an individual must meet at least one of the following five conditions:

  1. An individual who holds more than 25% of shares in the company
  2. An individual who holds more than 25% of voting rights in the company
  3. An individual who holds the right to appoint or remove the majority of the board of directors of the company.
  4. An individual who has the right to exercise, or actually exercises, significant influence or control over the company.
  5. An individual who has the right to exercise, or actually exercises, significant influence or control of a trust or a firm, which is not a legal entity, but would satisfy any of the first 4 conditions if it were an individual.

Conditions 1 to 3 might be met directly or indirectly, and if an individual meets one of the first three conditions, 4 and 5 do not need to be worried about. A condition is met indirectly where an individual holds their rights through, for example, another company.

But what about if the entity that meets one of these conditions is a company and not an individual? Although a company cannot be a PSC its’ details will need to be entered on the PSC register if it is a Relevant Legal Entity (RLE) and it satisfies at least one of the five PSC conditions.

So what is a Relevant Legal Entity (RLE)?

A company is an RLE if it meets one or more of the PSC conditions and:

  • It is a UK company that keeps a PSC register; or
  • It is a DTR5 Issuer (or equivalent); or
  • Its' shares are traded on a regulated market or on specified overseas markets (Israel, Japan, Switzerland or USA).

In other articles, we look in more detail at the process a company should follow to identify PSCs and at the information that needs to be included in the PSC register for both individual PSCs and RLEs.

But remember an individual or RLE who is identified as needing to be entered on the PSC register can only be recorded after they have confirmed their details.

What if a company does not maintain a PSC register?

Failure by a company to comply with its obligations to obtain PSC information and keep it up-to-date will be an offence by the company and every officer of the company who is in default.

Such an offence can bring criminal penalties, such as fine, imprisonment or both.

Final thought

As you’ve probably gathered by now the introduction of the PSC register is not a particularly straight forward subject and has been viewed as controversial.

For the vast majority of small companies however identifying their PSCs should not prove too difficult, and the complexity and amount of work to create and maintain this register will be proportional to the complexity of the company.

To find out more go to Gov.uk.

 

The content of this post is up to date and relevant as at July 2017.


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