From 6 April 2016 all unlisted UK companies and limited liability partnerships (LLPs) must have a new statutory register identifying people with significant control (PSC) over them. This is known as a PSC register.
Companies and LLPs should now have an internal PSC register and will need to file PSC information at Companies House from 30 June 2016, either as part of the new annual confirmation process that replaces the annual return or on a new company incorporation.
All unlisted UK companies, community interest companies, Societas Europaea and LLPs must have a PSC register, irrespective of their size. There is no exception for dormant companies.
The regime does not currently extend to cooperative societies, community benefit societies or charitable incorporated associations.
Overseas companies and companies listed on certain regulated markets, such as the London Stock Exchange and AIM, are excluded from the requirement to have a PSC register.
Local authorities do not need to have such a register but any trading subsidiaries, dormant subsidiaries or joint venture companies controlled by two local authorities would be caught.
In summary, a company needs to:
People with significant control are under a corresponding duty to notify the company of their interest in certain circumstances.
Failure to comply is a criminal offence, which can result in a fine and, in some cases, imprisonment of up to two years.
Offences can be committed by the company and its officers and also by people with significant control if they fail to provide the necessary information to the company. If a relevant person fails to respond to a company’s formal requests for PSC information this may eventually result in the company being able to apply restrictions on the affected shares such as a restriction on transfer.
The PSC register must record stipulated details about people with significant control over the company, such as name, address, and date of birth. It must contain official wording, as set out in the government guidance, outlining what level of control they have.
All companies must keep a PSC register and it can never be blank; even if they have no people with significant control, or are still investigating who may be a PSC, there is prescribed wording to be included.
Who or what is a person with significant control?
Broadly speaking, a person has significant control if he or she:
The fourth condition is potentially very wide and statutory guidance has sought to clarify whom this is intended to catch. This guidance also provides examples of excepted roles, which would not generally be caught.
By and large, professional advisors, company directors and company employees would not be caught by this fourth condition unless they had other opportunities to exercise influence or control or if the nature of their role was more extensive than is commonly understood. Similarly, in a shareholders’ agreement a minority shareholder with veto rights purely to protect their minority interest would not usually be caught under the fourth condition.
A company limited by guarantee without a share capital may well have articles of association that prevent the distribution of profits or capital, especially for example where it is also a registered charity. If your company cannot distribute profits or capital it will have no person with significant control who meets condition one but it might well have someone who meets one or more of conditions two to five. These will apply notwithstanding that it does not have share capital.
Where your company’s constitution does allow for the distribution of profits or capital, a person will fulfil condition one if that person holds a right to share in more than 25 per cent of your company’s profits or capital. Quantification of a person’s interest under condition one must be entered on the register using official prescribed wording. Confusingly, the official wording refers to shares because this is the most common company form, but for a company limited by guarantee you should consider shares to mean profit or capital.
So far we have been considering control of a company by an individual. Of course, many companies are not directly owned by individuals; they may be owned by another company.
The PSC regime tries to make life more straightforward for those companies forming part of a wider group by having the concept of relevant legal entities. Where a UK unlisted company is owned by another legal entity, details of that legal entity can be entered into its PSC register without looking further at who owns that immediate parent, provided that the legal entity in question is a registrable relevant legal entity. This will be the case if it:
So, for UK companies that are wholly owned by another UK company the position is straightforward. They will record details of their immediate parent company in their PSC register. The logic behind this is that if someone wants to know the individuals at the very top of the group structure they can follow the chain of PSC registers of all the UK companies in between in order to identify them.
When recording a relevant legal entity in your PSC register you must include the following:
Local authorities do not fall within the definition of relevant legal entities. However, for PSC purposes, the new law does treat certain entities as if they are individuals. This means that no further investigation as to their ownership or control is required. They can simply be recorded in the PSC register. Such entities include national or local governments and international organisations.
For these entities you must include the following information in your PSC register:
Therefore, if you have a company that is wholly or jointly owned by local authorities or another government body, you record the above details in your PSC register for each such entity once you have taken reasonable steps to check that they have significant control and are confident that the details you have are accurate.
You should keep an audit trail of the steps you have taken to reach this conclusion and should have processes in place to ensure that any updates to the PSC register are made if the ownership or control of the company changes in the future.