New law to identify who controls UK companies and LLPs

Published: 24/03/2016

The Small Business, Enterprise and Employment Act 2015 which came into force on 26 March 2015 will require all UK companies (UK listed companies are broadly exempt) and UK LLPs (limited liability partnerships) to maintain a register of all those persons who have significant control over the company or LLP. This new “persons with significant control” register (known as the PSC register) is part of a series of measures aimed at increasing transparency around persons who ultimately control UK companies and LLPs.
  
Companies and LLPs will be required to start maintaining the PSC register from 6 April 2016 and it will be open for public inspection and searchable at Companies House on a central register from 30 June 2016. 

For some companies and LLPs, particularly those with complex ownership structures, the task of identifying persons who exercise significant control over them may be challenging and will constitute a significant additional administrative burden.

This note is an overview of the PSC regime. For more information on how to identify PSCs please refer to the guidance note for simple corporate structures and the guidance note for complex corporate structures

Who is affected by the change?

All UK companies and LLPs will be required to keep and maintain a PSC register including subsidiary and dormant companies. The only exceptions are for certain publicly traded companies: that is companies which are already subject to the transparency measures of the Financial Conduct Authority’s Disclosure and Transparency Rules and companies with voting shares admitted to trading on a regulated market in the European Economic Area or on specified markets in the USA, Switzerland, Japan and Israel.  

It is worth noting that individuals whose names will appear on the PSC register may not in all cases welcome the disclosure of their connection with a particular company or LLP; particularly where the relevant company or LLP operates in a sensitive sector.  

Who needs to be included on the PSC register? 

An individual will be a person who exercises significant control (a PSC) over a company if the individual meets any one of the following five conditions:

  • holds, directly or indirectly, more than 25% by nominal value of the company’s shares
  • is entitled, directly or indirectly, to exercise more than 25% of the voting rights of the company
  • may, directly or indirectly, appoint or remove a majority of the board of directors of the company
  • 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 which is not a legal entity but which itself satisfies one of the above conditions. 
An individual will be a PSC over an LLP if the individual meets any one of the following five conditions:

  • holds, directly or indirectly, rights over more than 25% of the surplus assets of the LLP on a winding up
  • holds, directly or indirectly, more than 25% of the voting rights in the LLP
  • holds the right, directly or indirectly, to appoint or remove a majority of those involved in the management of the LLP 
  • has the right to exercise or actually exercises “significant influence or control” over the LLP
  • has the right to exercise or actually exercises “significant influence or control” over a trust or firm which is not a legal entity but which itself satisfies one of the above conditions. 
There are specific provisions dealing with interests held through trust arrangements, joint interests and arrangements, nominee arrangements and limited partnerships. There are also provisions dealing with indirect holdings through a chain of entities which may mean that a legal entity itself rather than an individual may need to be included on the PSC register where it would meet the test for significant control if it were an individual and it satisfies certain additional criteria (ie, it holds its own PSC register or is a publicly listed company). These are known as registrable relevant legal entities (RLEs).  

Draft statutory guidance has now been published on the meaning of “significant influence or control” in the context of both companies and LLPs. It sets out a number of illustrative examples such as where a person has absolute decision rights or veto rights over decisions relating to the running of the business of the Company or LLP.

What information will need to be included on the register?

The register will include the individual’s name, service address, nationality, date of birth and country of residence and the date on which they become registrable on the PSC register together with confirmation of which of the conditions for being a PSC the individual meets. The individual must confirm the information before it appears on the register.

The usual residential address of all people within significant control will be kept by the company but will not appear on the registers that are available to the public (the PSC register and the Companies House central register). This information will only be accessible by specified authorities and credit reference agencies on request. If the disclosure of a PSC’s details would put the individual at serious risk of violence or intimidation, the PSC can apply for further PSC information to be protected. 

With regards to a registerable RLE, the register needs to include the RLE’s name, registered or principal office address, the legal form of the entity and the law by which it is governed, the register in which it appears and its registration number (if applicable), the date it became a registrable RLE and which of the five conditions for being a PSC it meets.

How will this new regime work?

Companies and LLPs will be obliged to investigate, obtain and update information about relevant individuals and legal entities that have control over it and accordingly maintain and update their PSC register. They will also in due course have to file that information at Companies House with their annual confirmation statement (formerly their annual return). Note that private companies may opt to have the PSC information held solely at Companies House and not maintain a separate PSC register as well, although as the register at Companies House is not available until 30 June 2016, a company will be required to have its own register between 6 April and 30 June 2016. There will be criminal sanctions for companies and LLPs who fail to comply with the new PSC register regime.

There will also be obligations on a person who has significant control over a company or LLP to inform the company or LLP (as the case may be) of that fact and provide the relevant information for the PSC register. A company or LLP can impose voting, transfer or other restrictions on the relevant person who fails to comply.

What next?

Companies and LLPs must take action now to ensure that their PSC register is in place by 6 April 2016 and is populated with relevant information of its PSCs and RLEs. If for any reason they do not have the relevant information by 6 April, they will still need to ensure that they have the appropriate official wording recorded in their PSC register.

Government guidance to help companies understand and comply with the PSC regime has been published.

Need further help?

This note is an overview of the PSC regime. For more information on how to identify PSCs please refer to the guidance note for simple corporate structures and the guidance note for complex corporate structures

If you require any further information on this topic please contact Andrea Curtis on 01473 406349 or andrea-curtis@birketts.co.uk.

*This article was first published on our website on 8 February 2016

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