As part of the requirements of the Small Business, Enterprise and Employment Act 2015, from 6 April 2016, most companies and limited liability partnerships (LLPs) will be required to keep and maintain a register of persons with significant control (PSC Register).
Helping to combat tax evasion, money laundering, and terrorist financing, the new obligations will provide greater transparency as to exactly who owns, or has control over UK companies.
The information contained in the PSC Register will need to be provided to Companies House and will be made accessible to the public. In the case of new companies formed from 30 June 2016 onwards, it will be necessary to complete a statement of initial significant control which will be submitted to Companies House with the other documents required to form a company. In the case of existing companies, from 30 June 2016 onwards the information will be provided in the next annual Confirmation Statement the company provides to Companies House. The Confirmation Statement will replace the Annual Return that company clients are familiar with.
What is a PSC?
A PSC is defined as a person who:
- Holds, directly or indirectly, more than 25% of a company’s shares
- Holds, directly or indirectly, more than 25% of its voting rights
- Holds, directly or indirectly, the right to appoint or remove directors holding a majority of the votes that can be cast at a meeting of its board of directors
- 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 the activities of a trust or firm which is not a legal entity and whose trustees or members meet any of the above conditions or would do so if they were individuals.
Relevant legal entities
A PSC must be an individual. However, many companies count other companies amongst their shareholders, and many are wholly owned by parent companies. Accordingly, companies must also identify and register any relevant legal entities (RLEs) which, if they were individuals, would be classed as a PSC.
However, not all entities holding shares in a company are classified as RLEs. To be an RLE an entity must:
- Maintain its own PSC register;
- Be subject to Chapter 5 of the Financial Conduct Authority’s Disclosure and Transparency Rules (which includes UK companies listed on AIM and the ISDX Growth Market); or
- Have voting shares admitted to trading on a regulated market in the UK or European Economic Area (other than the UK) or on specified markets in Switzerland, the USA, Japan and Israel.
Most entities holding shares in a company will fulfil one or more of these criteria and must be registered and identified as RLEs. Where an RLE is so identified and registered in a company’s PSC register, it is not necessary to also identify who owns the RLE (although of course, where the RLE maintains a PSC Register itself, the relevant information will have to be included in that). In the rarer situations where an entity holding shares in a company does not fulfil one or more of these criteria, it must not be registered and identified as an RLE. In such situations, it is necessary to look past that entity and up the chain of ownership until either a PSC or RLE is identified with majority ownership of that entity, or there is confidence that no PSC or RLE exists.
What if the company has no PSC?
Not all companies will have a PSC. However, the PSC Register can never be blank. If a company has taken all reasonable steps and has identified that there are no individuals or legal entities which meet any of the conditions above, this must be entered on the PSC Register. The PSC Register must state that:
“The company knows or has reasonable cause to believe that there is no registrable person or registrable relevant legal entity in relation to the company.”
The new obligations will apply to companies, Societates Europaeae (SEs), and Limited Liability Partnerships (LLPs).
They do not apply to Limited Partnerships (LPs), Charitable Incorporated Organisations (CIOs) or foreign companies operating in the UK. In addition, the legislation does not apply to those companies already subject to Chapter 5 of the FCA’s Disclosure and Transparency Rules, or those with voting shares that are traded on an EEA regulated market, or on one of the specified markets in Israel, Japan, Switzerland, or the United States.
While the PSC regime is only applicable to companies not listed on the AIM / LSE Main Market, subsidiaries of such companies that are not listed will have to comply.
What happens if someone ceases to be a PSC?
If a company becomes aware that a person has ceased to be a PSC, the date they ceased being a PSC must be recorded in the company’s PSC Register as soon as reasonably practicable.
The central public register at Companies House will be updated in the company’s next Confirmation Statement. Information about such persons must be kept on the company’s own register for ten years from the date on which they ceased to be a PSC.
What do you need to do?
If your company is subject to the new legislation, you have an obligation to produce and update your PSC register. This includes taking all “reasonable steps” to obtain the necessary information from potential PSCs or relevant legal entities.
It is a criminal offence not to comply with your obligations in relation to the PSC Register, both in terms of seeking and providing information. Individuals or entities that refuse to respond to requests for information could find themselves disenfranchised or face restrictions on their shares.
With the new obligations coming into force in April 2016, all affected businesses must act now to ensure compliance and avoid criminal sanctions.
If you would like to find out more about the PSC Register requirements or how they apply to your company, please contact Linder Myers today.