Trust and Transparency: an overview of the new PSC Register and the rules governing the disclosure of controlling interests in UK companies and LLPs
Key contact
This article was produced by Olswang LLP, which joined with CMS on 1 May 2017.
Originally published 12 August 2015 and last updated on 25 April 2016.
What is the PSC Register and why has it been introduced?
The PSC or 'persons with significant control' register is a new statutory register which most UK companies and LLPs are required to keep in order to ensure that the individuals who are its ultimate beneficial owners and controllers are identified and details of their holdings made public.
The Government hopes that the introduction of the PSC Register and the other measures relating to transparency contained in the Small Business, Enterprise and Employment Act 2015 will help combat tax evasion, money laundering and terrorist financing by allowing a full picture of both the legal and beneficial ownership of businesses to be created. The EU has also introduced similar measures in the Fourth Money Laundering Directive which came into force on 25 June 2015 and must be implemented by all member states by 26 June 2017.
Where to find the new rules and guidance
TThe rules have been implemented by the insertion of a new part 21A and schedules 1A and 1B into the Companies Act 2006 ("Act") with the detail surrounding certain provisions being contained in the Register of People with Significant Control Regulations 2016 ("Regulations") here. In addition, The Limited Liability Partnerships (Register of People with Significant Control) Regulations 2016 here apply the provisions to LLPs and the European Public Limited Liability Company (Register of People with Significant Control) Regulations 2016 here apply the provisions to SEs.
The Government has also published various pieces of guidance on the regime as follows:
Non-statutory guidance for Companies, Societates Europaeae and Limited Liability Partnerships on the Register of People with Significant Control ("Non-statutory Guidance for Companies") together with summary guidance.
Non-statutory guidance for People with Significant Control Over Companies, Societates Europaeae and Limited Liability Partnerships ("Non-statutory Guidance for PSCs")
Statutory guidance on the meaning of ‘significant influence or control’ in the context of companies ("Statutory Guidance on SIOC for Companies").
Statutory guidance on the meaning of ‘significant influence or control’ in the context of LLPs ("Statutory Guidance on SIOC for LLPs").
The current versions of these can be found on the Government website here.
When are the new rules in force and who do they affect?
The rules came into force on 6 April 2016, requiring those entities subject to the new requirements to maintain a PSC Register from that date. Further provisions will come into force on 30 June 2016, which will require this PSC information to be filed at Companies House as part of the entity's confirmation statement (which replaces the annual return from this date).
The rules apply to all UK companies, except those subject to the disclosure requirements of DTR 5 (e.g. LSE main market and AIM companies) and companies with voting shares admitted to trading on a regulated market in an EEA state (other than the UK) or on certain specified markets in Switzerland, the United States, Japan and Israel. This is because these companies are already required to make details of major shareholdings public. As mentioned above, the rules also apply to LLPs and to UK registered Societates Europaeae.
Who is a 'person with significant control'?
An individual with significant control will meet at least one of the following five conditions:
- directly or indirectly hold more than 25% of the nominal share capital; or
- directly or indirectly control more than 25% of the votes at general meetings; or
- directly or indirectly be able to control the appointment or removal of a majority of the board; or
- actually exercise, or have the right to exercise, significant influence or control over the company; or
- actually exercise or have the right to exercise significant influence or control over any trust or firm (which is not a legal entity) which has significant control (under one of the four conditions above) over the company.
The Act contains detailed provisions relating to the interpretation of these five conditions (including anti-avoidance provisions). The Non-statutory Guidance for Companies and the Non-statutory Guidance for PSCs gives some further explanation of how the provisions work in practice and includes some helpful examples of the application of the provisions to more complicated corporate structures. However, the guidance does not have the weight of law and should be used in conjunction with the law as set out in the Act.
The Statutory Guidance on SIOC for Companies (and the equivalent guidance for LLPs) has a different status as it is laid before Parliament and approved. As a consequence, regard must be had to this guidance when considering whether an individual fulfills either of conditions 4 or 5.
The Statutory Guidance on SIOC for Companies
The Statutory Guidance on SIOC for Companies (and the equivalent guidance for LLPs) sets out a series of non-exhaustive principles and examples of the types of relationships and roles which a person may have with a company (or LLP) and which may consequently lead to the conclusion that such a person either (a) has significant influence or control ("SIOC") over that company or LLP (condition 4); or (b) SIOC over a trust/firm which itself has significant control (under any of conditions 1 to 4 above) over that company or LLP (condition 5).
It also sets out a number of examples of roles and relationships which would not, in and of themselves, lead to this conclusion – so called ‘safe harbours’.
Significant influence and control as alternatives
The Statutory Guidance on SIOC for Companies starts by explaining that ‘significant influence’ and ‘control’ are alternatives.
- "A person will have control over a company if they have the power to direct its policies and activities."
- "A person exercising significant influence will be able to ensure that the company adopts those policies or activities which are desired by that person."
Having the right to exercise SIOC and actually exercising SIOC
The Guidance then distinguishes between having the right to exercise SIOC and actually exercising SIOC.
Examples of what might constitute having a right to exercise SIOC over a company include having veto rights over decisions related to the running of a company, for example: adopting or changing the business plan, changing the nature of the business, decisions on borrowings or incentive schemes etc. However, a distinction may be drawn where veto rights are held purely to protect a minority interest (such as the right not to be diluted, the right to prevent changes to the company’s constitution, and the right to prevent a winding up) and these may not necessarily constitute a right to exercise SIOC.
In relation to actually exercising SIOC over a company, the Guidance highlights a number of situations in which a person may actually exercise SIOC. These include where a person has multiple relationships with a company. For example, a director who also has key relationships important to the running of the business may be able to leverage his additional power to influence the outcome of decisions. In the same way, a founder with a very small residual shareholding, but who is still consulted on most decisions and whose recommendations are still largely followed, could also be said to be exercising SIOC.
The Guidance then gives separate examples of situations and relationships which might lead to a conclusion that an individual has the right to exercise, or actually exercises, SIOC over a trust or firm which itself has significant influence (under any of conditions 1 to 4) over a company.
Safe harbours
The Guidance indicates that the following types of roles and relationships would not ordinarily lead to the conclusion that an individual exercises SIOC over a company:
- a person providing advice or direction in a professional capacity, such as a lawyer or accountant;
- a person engaged with the company in a third party commercial agreement, such as a supplier or customer or lender;
- a person who is an employee acting in the course of their employment, or who is a director of the company (including a director with a casting vote);
- a person exercising a function under an enactment, such as a liquidator; and
- a person who makes recommendations to shareholders on a one-off issue.
However, the Guidance also points out that where a role or relationship which would otherwise fall within a safe harbour is materially different in practice from how that role or relationship is generally understood, or is only one of a number of ways in which that individual can influence or control the company, then the safe harbour will not apply.
The Guidance sets out separately a list of similar safe harbours which may apply to a person who might otherwise be considered to be exercising SIOC over a trust or firm.
Statutory Guidance on SIOC for LLPs
The Statutory Guidance on SIOC for LLPs follows the same structure as the equivalent guidance for companies described above, but with indicators and safe harbours appropriate to the LLP structure.
Registrable individuals and registrable relevant legal entities
A company’s PSC Register may need to record the names of individuals with significant control over a company and also the names of legal entities with control.
A ‘relevant legal entity’ in relation to a company is a legal entity which (a) would have been classed as a person with significant control had it been an individual; and (b) is subject to its own disclosure requirements (ie. it has to maintain its own PSC Register or is exempt because, for example, it is a DTR 5 issuer or EEA equivalent).
The Act sets out the circumstances in which the details of individuals with significant control and relevant legal entities will need to be entered into a company’s PSC Register – ie. when they are ‘registrable’.
The provisions aim to minimise duplicative filings in straightforward cases. If, for example, company A is owned by company B and company B maintains a PSC Register, an individual with significant control over both B and A (as a result of the same shareholding in company B) need not be registered as a PSC in relation to company A, provided that the individual concerned has no other interest in company A through any other means. Instead, company B would be entered into the PSC Register of company A as a relevant legal entity. This is on the basis that anyone looking at the PSC Register of company B would discover the ultimate individual with significant control.
However, the rules are tightly drawn and contain anti-avoidance provisions. For example, if company B in the example above was outside the scope of the new rules (eg. a foreign company) company A would not be able to include company B in its PSC Register (since it would not be a relevant legal entity) and must look through company B and register the individual as a PSC in its PSC Register.
How is the information compiled and what are the penalties for non-compliance?
In order to compile the PSC Register, each company is under an over-arching duty to take reasonable steps to find out if anyone is a registrable person or registrable relevant legal entity in relation to it and to identify them if this is the case. The Non-statutory Guidance for Companies provides helpful suggestions as to the steps entities should consider taking to identify those persons or entities who are registrable in relation to them.
Investigations by the company are to be made by notice, which can be given both to suspected registrable persons and relevant legal entities and also to anyone the company knows is aware of (or who the company has reasonable cause to believe is aware of) the identity of a registrable person or relevant legal entity, or of a person likely to know that information.
The Act sets out detailed requirements for these notices and pro forma examples are contained in the Non-statutory Guidance for Companies. Failure by an individual or legal entity to respond to a company's enquiries gives the company the ability (without a court order) to disenfranchise, and impose other restrictions on, any shares held by them. The detail of this procedure, involving the company serving 'warnings notices' and 'restrictions notices', is set out in the Regulations with additional explanation and example notices in the Non-statutory Guidance for Companies..
Where a company has not sent the necessary notices requesting PSC information then the registrable individuals or relevant legal entities concerned have an obligation proactively to inform the company of their interest (or any changes to it).
There are criminal penalties for non-compliance with these duties for companies and their officers and the individuals or relevant legal entities concerned. However, for the individuals or relevant legal entities, it is the threat of disenfranchisement which is likely to be the most effective deterrent against non-compliance.
What information is recorded?
Personal information: For individuals on the PSC Register certain personal information needs to be disclosed including name, service address, nationality, date of birth and usual residential address. The Act and the Regulations contain safeguards on how this personal information may be used and disclosed.
Details of the nature of the control exercised: The Regulations set out the various prescribed statements which can be included in a company’s PSC Register. Where a company has identified a PSC then the Register must use one or more of the prescribed statements to record which of the five conditions of significant control the registrable person or relevant legal entity meets. The Non-statutory Guidance for Companies also confirms that where a registrable person or relevant legal entity meets one or more of conditions 1 to 3 then the company does not need to investigate further as to whether that person also meets condition 4.
In addition, where the registrable person or relevant legal entity meets either condition 1 or 2 the broad extent of their holding of shares or votes must be disclosed by selecting one of three pre-set bands:
- greater than 25% but less than or equal to 50%
- greater than 50% but less than 75%
- greater than or equal to 75%
Status of investigations: The Regulations also provide that where a definitive position as to ultimate control has not yet been determined, or where the disenfranchisement provisions have been invoked, the PSC Register must include certain prescribed statements confirming what steps have been taken to identify registrable persons or relevant legal entities and the position in relation to any restrictions notices issued.
As a company's PSC Register must never be blank, since 6 April 2016 all PSC registers should have been completed either by inserting the details of any registrable individuals or RLEs or by using one of the prescribed statements detailing the status of the company's investigations. Whilst initial enquiries are ongoing, it is likely that many PSC registers will contain the following statement;
"The Company has not yet completed taking reasonable steps to find out if there is anyone who is a registrable person or a registrable relevant legal entity in relation to the company."
How will the PSC Register be made available to the public?
A company's PSC Register must be kept at its registered office (or other inspection address) and be available for public inspection in the same way as for the register of members. Companies are obliged to provide free access to the PSC Register and copies of it to any person on request for a flat fee of £12 per copy.
From 30 June 2016 the information on the PSC Register will also need to be confirmed to Companies House at least every 12 months and will be held by it on a publically searchable database. In addition, from 30 June 2016 companies will be able to elect to keep their PSC Register (as well as other statutory registers) at Companies House.
What safeguards are there?
As information on the PSC Register is available to the public, the Act and the Regulations also contain a protection regime designed primarily to protect those persons who would otherwise be at serious risk of violence or intimidation.
Protection of date of birth information: Although the full date of birth of a registrable person appears on the company's PSC Register and is discoverable by anyone inspecting that register, the day element of the date of birth will not ordinarily be included on the publically searchable register held at Companies House. The only exception to this will be where, following the changes to the filing regime due in force on 30 June 2016, the company has elected to keep its PSC Register at Companies House.
Protection of residential address information: The protection regime under the Companies Act 2006 in relation to directors' residential addresses has been expanded and applied to persons on the PSC Register. This means that (other than in very restricted circumstances) the company must not use or disclose that information and the Registrar may only disclose it to identified public authorities and (subject to certain conditions) to credit reference agencies. In addition, the Regulations give individuals who consider themselves (or people with whom they live) to be at serious risk of violence or intimidation as a result of the activities of the company, the ability to prevent the Registrar from supplying residential address information to credit reference agencies.
Protection of all information on the PSC Register: The Regulations have also introduced a much wider power to prevent the disclosure by the Registrar or the company of any of the information about an individual on the PSC Register. An application under this power can be made by individuals who consider themselves (or people they live with) to be at serious risk of violence or intimidation either as a result of the activities of the company, or as a result of the activities of the company when combined with particular attributes or characteristics of the individual concerned.
More practical guidance on the use of the protection regime is given in the Non-statutory Guidance for Companies and the Non-Statutory Guidance for PSCs.
Protection of individuals during the transitional phase: For individuals who were registrable persons in relation to a company on 6 April 2016, the Regulations contain transitional provisions which give these individuals the right to apply (on or before 30 June 2016) to prevent any of their details on the PSC Register being made public. The basis for the application is the same as that described in the previous paragraph. If the application is successful then the individual's privacy is protected accordingly. If it is not, then provided that the individual ceases to be registrable (i.e. they divest their interest) within a given period of time, their personal details will not be visible on the public register.
What's next?
Although the rules on the PSC Register are now in force, this is not the end of the story with issues relating to transparency continuing to make the headlines. The Fourth Money Laundering Directive (which introduces very similar rules on a Europe-wide basis) must be implemented by 26 June 2017 and, although the PSC Register provisions will fulfil most of the requirements of the Directive, some changes to the detail will be necessary. In particular, further consultations this year will deal with extending the provisions to Scottish Limited Partnerships and some other legal entities. The Directive also requires the central searchable register held at Companies House to be kept up-to-date at all times, whereas under the Act, companies are currently only required to update this information annually at Companies House.
In addition, the Government has been consulting on how to improve the transparency of the ownership and control of foreign companies which own property in the UK or which tender for UK Government contracts and has recently announced deals with various overseas jurisdictions to share information on the beneficial ownership of companies to help combat tax evasion and criminal activity.
