Since 6 April 2016, all UK companies (save for certain listed companies which are exempt1) have been required to register all those people who have significant control over them (their PSCs) on a PSC register which they must maintain. A brief overview of the key obligations under the PSC regime can be found here.
This note helps companies with simple ownership structures identify who are their PSCs. It is aimed at companies whose shares are held by individuals or UK companies and which do not involve nominee/joint interest or trust arrangements. Likewise it is anticipated that the company’s articles or shareholders agreement do not include complex voting and/or control rights and that no other arrangements exist whereby a person exercises significant influence or control over the company. Companies with more complex ownership structures should refer our detailed note here.
The PSC regime also applies to UK LLPs but with modifications to reflect their different ownership structures. This note can be read as generally applying to LLPs though further advice will need to be sought to identify additional considerations.
Who is a PSC?
The regime provides that a PSC must be an individual (whether or not domiciled in the UK) who meets one or more of the following conditions in relation to the company:
(i) holds, directly or indirectly, more than 25% by nominal value of the company’s shares;
(ii) is entitled, directly or indirectly, to exercise more than 25% of the voting rights of the company;
(iii) may, directly or indirectly, appoint or remove a majority of the board of directors of the company;
(iv) has the right to exercise or actually exercises “significant influence or control” over the company; or
(v) has the right to exercise “significant influence or control” over a trust or firm which is not a legal entity but which itself satisfies one of the above conditions.
Conditions (iv) and (v) deal with more complex control arrangements and/or ownership structures which are beyond the scope of this note. Please refer to our detailed guidance note here.
Individuals as PSCs
A simple example of control via shareholding rights is set out below.
In this diagram Individual 1 and Individual 2 are PSCs as they both meet control condition (i), they each own more than 25% of the shares of company A. If all shares in the company hold one vote each then they also meet control condition (ii). Individual 3 does not hold sufficient shares to meet either condition (i) or (ii). The diagram assumes that none of the individuals have any special rights to satisfy control conditions (iii).
In the above example none of the individual shareholders hold more than 25% of the shares and therefore do not satisfy control condition (i). Assuming that each share in the company holds one vote each, and there are no additional control conditions in the articles of association or any shareholders agreement, then control condition (ii) and (iii) will also not be satisfied. The company will therefore have no PSCs and the company will need to enter that fact on its PSC register.
Individuals and indirect control
Note that conditions (i) to (iii) can be met directly or indirectly. An individual who meets a control condition directly should always appear on the PSC register. A control condition is met indirectly where an individual holds their rights via a legal entity in which he/she holds a majority stake and that legal entity meets one of the control conditions. In those circumstances it will often be the legal entity that appears on the company’s PSC register and not the individual. This will be the case if the legal entity is a registrable relevant legal entity. See next section below for further information.
Companies and other bodies corporate as PSCs
In many circumstances a company may not have any individuals who are PSCs as its shares are held by one or more legal entities (for example a subsidiary company in a company group structure). In that case it will be the legal entity itself that should be included in the PSC register if it is a “relevant legal entity” (RLE) and it is registrable. A company must therefore identify both its PSCs and its registrable RLEs on its PSC register.
An RLE is one which:
(a) would have been a PSC if it had been an individual (i.e. it meets one of the control conditions (i) to (v)); and
(b) it holds its2 own PSC register (a UK non-listed company or UK LLP) or meets other deemed equivalent disclosure requirements (broadly companies with shares listed on certain specified markets).
An RLE will be registrable if it is the first RLE in the company's ownership chain. This is demonstrated in the example below.
Individual 1 owns 100% of the shares of Company C. Company C is a UK company which must maintain its own PSC register. Individual 1 is therefore registrable as a PSC for Company C. Individual 1 is also a PSC for Company B (indirect control). He is not however registrable as a PSC for Company B as the intervening entity (Company C) is an RLE. Company C will therefore appear on the register of Company B. Likewise Individual 1 and Company C’s indirect control of Company A does not require them to appear on the register of Company A. Company B, an RLE, will appear on the register of Company A.
For more illustrative examples of some of the complexities in relation to RLEs and PSCs refer to our more detailed note here.
What should a company do to identify its PSCs?
For simple ownership structures the checks will be relatively straightforward as set out in the table in this note. For more complex ownership arrangements, and to check for control conditions (iv) and (v), further investigations and documents will need to be reviewed; please refer to the complex corporate structures note here.
This table is a modified version of a table appearing in the Government's detailed guidance on the PSC regime.
||How to identify
Directly or indirectly owning more than 25% by nominal value of the shares.
|Review the register of members, articles of association and statement of capital to identify blocks of shareholding over 25%.
Directly or indirectly holding more than 25% of the voting rights.
Review the register of members, articles of association and any shareholder agreements to identify whether anyone holds more than 25% of the voting rights.
Check for different voting classes of shares with different voting rights and any weighted voting rights, voting rights only exercisable in certain circumstances.
Consider whether voting patterns suggest that some shareholders are acting together (e.g. groups of investors).
Directly or indirectly holding the right to appoint or remove a majority of the directors.
Review any provisions in the articles of association or any other agreement (e.g. a shareholders agreement) which concern the appointment or removal of directors holding the majority of votes at board level.
If different directors have different voting rights at board meetings consider whether anyone has the right to appoint or remove directors who could carry a majority in board votes on all or substantially all matters.
Need further information / help?
Government guidance to help companies understand and comply with the PSC regime has been published. This is available here.
For further enquiries contact Andrea Curtis at Birketts on 01245 211351 or [email protected].
To download this as a PDF, please click here.
1 The PSC regime does not apply to (i) UK listed companies with shares traded on the main market of the London Stock Exchange; (ii) UK companies with shares admitted to trading on a regulated market on another EEA state or on specified markets in Switzerland, USA, Japan or Israel. Note that the UK subsidiaries of such exempt companies are subject to the PSC regime and must maintain a PSC Register. Since 26 June 2017, the exemption has not applied to companies quoted on AIM and such companies have been required to keep a PSC register from 24 July 2017.
2 This will be a company listed on the main market of the London Stock Exchange or whose shares are traded on a regulated market in the another EEA state or specified markets in Switzerland, USA, Japan and Israel.
The content of this article is for general information only. It is not, and should not be taken as, legal advice. If you require any further information in relation to this article please contact the author in the first instance. Law covered as at August 2017.