Will the True Owners Come Forward?

From 2016, most companies and limited liability partnerships (LLPs) will be required to keep a new register – the Register of People with Significant Control (to be known as the PSC Register). This may sound like a 1984 spoof, but these regulations will require companies and LLPs to make public information about their ultimate owners, particularly where shares are held through trusts or nominee shareholding unless they are listed public companies.

The Small Business Enterprise and Employment Act was one of the last pieces of legislation to become effective prior to the last general election.

Who is a person with significant control (“PSC”)?

The definition of a PSC mirrors the definition of beneficial owners used in anti-money laundering legislation. It applies to someone who owns, directly or indirectly, 25% or more of the voting rights in a company, or 25% or more of the equity in a company or who is able to exercise control over a company in another way, for example, by having a right to appoint a majority of the directors. In addition a PSC can be a person who exercises significant control over a firm or trust which meets one of those criteria. A PSC can be a legal entity as well as an individual, but companies will be expected to track back ownership to reveal the individuals behind any legal entities which are PSCs.

What information will be required?

Companies will be required to file details of a person with significant control’s name and residential address, nationality and date of birth, just as currently for directors. The residential address and the day on which the person was born will not be available to the public although the person’s name and month and year of birth will be disclosed. In case of a PSC which is a “relevant legal entity”, the company will have to disclose the name of the PSC, its legal form and the law which regulates it, its registered office or principal place of business and its registered number (if applicable). There are provisions which will allow the identity of a PSC to be kept off the public register, for example, if there is a security risk to the person involved.

What legal obligations will be involved?

From 2016, companies will have a legal duty to keep the PSC register up to date and correct and will required to take reasonable steps to investigate if they suspect that there have been changes in their shareholdings or in the people who control their shareholdings. Companies will be given powers to ask questions of shareholders and other relevant entities, in order to maintain the accuracy of their registers. There is also a corresponding duty placed on people with significant control to disclose their interests to the companies.

Companies will have to submit annual confirmation statements that the information on the PSC and other information held at Companies House is accurate, and such statements will replace the annual return.

The company and the officers of a company will be criminally liable if the company fails to take reasonable steps to identify PSCs correctly. The officers of the company could be liable for imprisonment for a maximum of two years or a fine.

A person who may be a PSC will commit an offence if he fails to disclose his interest within 28 days of becoming aware of it, or if he fails to respond to a notice served by the company in relation to the shareholdings or if he provides false information in response to any such notice. In each case the criminal offence carries a maximum custodial sentence of 2 years, or a fine.

In addition, a company will be able to place restrictions (suspending all rights) on the shares held by a shareholder who has failed, without good cause, to respond to a notice served by the company requiring information connected with the PSC Register.

What should companies be doing to prepare and how long have they got?

Companies will be required to have a PSC Register from April 2016 and the requirement to file the information at Companies House has been delayed to become effective from June 2016.

Companies should be reviewing their register of members now to determine which shareholdings will need to be included in the PSC or which may need investigation if ownership or background is unclear.

In many cases it will be easy to identify who are the People with Significant Control and to use the information contained on the register of members to complete the PSC Register. But for companies with a wider share ownership or which have outside investors, there may be some doubt about who controls some of the shares. And in some cases, the regulations may result in a considerable administrative burden for a Company.

Larger Companies may have to consider whether to have policies setting out when and how they will investigate shareholdings to ensure compliance and good practice. All companies will need to consider what “reasonable steps” they will need to take in order to maintain an accurate and up-to-date PSC register.