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As we previously advised - with effect from April 2016 most companies and limited liability partnerships (LLPs) will be required by the government to keep a Register of People with Significant Control (the PSC Register).
What is considered to be “significant influence or control”?
The Small Business Enterprise and Employment Act requires most companies to keep and maintain a PSC Register, which is a list all PSCs involved in the company. Under the new legislation a person with significant control is deemed to be anyone who;
- holds, directly or indirectly, 25% or more of the voting rights;
- holds, directly or indirectly, 25% or more of the equity;
- holds the right to appoint or remove the majority of the board of directors;
- otherwise has the right to exercise or actually exercises significant influence or control; or
- has the right to exercise or actually exercises significant influence or control over a firm or trust which meets one of the above criteria.
The Act is applicable to all unlisted UK companies. At the time of the publication of the Act, there was little guidance as to what is considered to be “significant influence or control”.
However, in December 2015, the government published its draft statutory guidance on the meaning of “significant influence or control”.
Key points to note
- A person has “control” of a company or of the activities of a trust or firm if he has the power to direct its policies and activities.
- A person has “significant influence” if he can ensure that the company or trust adopts those policies or desires which are desired by that person.
- the “control” or “significant influence” does not need to be directed towards the financial and operating policies of the company and does not need to be exercised by a person with a view to gaining economic benefits from the policies or activities of the company.
- A person may hold a right to exercise significant influence or control as a result of a variety of circumstances including through the provisions of a company’s constitution, the rights attached to the shares which they hold, or via a shareholders’ or some other agreement. Whether the person exercises their right or not is irrelevant.
- Rights to veto decisions related to the running of the business of the company may constitute a right to exercise significant influence or control but veto rights in relation to certain fundamental matters for the purposes of protecting minority interests in the company alone are unlikely to constitute significant influence or control.
- All relationships that a person has with the company or other individuals who have responsibility for managing the company, should be taken into account, to identify whether the cumulative effect of those relationships places the individual in a position where they actually exercise significant influence or control.
- A person would exercise significant influence or control if they are involved in the day to day management of the company, whether or not formally appointed as a director and would include shadow directors.
- Certain roles and relationships would not, in the normal course, result in that person being considered to be exercising significant influence or control for the purposes of the PSC Register, for example:
- a person giving advice or direction in their professional capacity such as lawyers, accountants, tax advisors and financial advisors;
- a person who is dealing with the company under a third party agreement or financial agreement such as suppliers and lenders;
- a person exercising a function under an enactment such as a regulator or a liquidator or receiver appointed under the Insolvency Act 1986;
- a person who is acting in the course of their employment and as nominee for their employer; and
- a person who makes recommendations to shareholders on a single one-off issue, which is subject to a vote.
All companies that are subject to the Act are required to have a PSC Register in place by 6 April 2016 and the requirement for a company to file its PSC information with Companies House is effective from 30 June 2016. Companies must also take reasonable steps to identify any PSCs and RLEs. It is therefore prudent for all companies to start looking at their registers of members and any other arrangements of which they are aware (such as shareholders agreements) to identify their PSCs and RLEs. Companies should also make enquiries of any person that they consider may be PSCs or corporate entity equivalent (otherwise known as Relevant Legal Entities, RLEs) or who may have relevant knowledge of the same.
The following information must be collected by the company and entered in its PSC Register along with certain prescribed wording:
| For Individuals | For Entities |
|---|---|
Full name | Name |
Service Address | Registered/principal office address |
Country/state or part of the UK of residence | Legal form and governing law |
Nationality | Registration number |
Date of birth | Date became registerable |
Usual residential address (this will not be part | Nature (and extent if relevant) of control |
Which conditions for being a PSC are being met |
|
Details of any current restrictions of |
|
Date became registerable |
|
Nature (and extent if relevant) of control |
The above information must be confirmed by the relevant PSC or RLE before it can be included in the PSC register. A company will also have to update its PSC Register if any of the information it holds is no longer correct. The company should therefore give notice to people or entities as soon as they learn of any change or have reason to believe there has been a change, including any change of address.
It is vital for companies to ensure that the PSC Register is accurate at all times and for people to comply with any notices requiring them to provide information in relation to PSCs and RLEs. Failure to do so are criminal offences for the individual, entity or the company and/or its officers and may result in a fine and/or a prison sentence of up to two years.