Published in April 2022
Outline
The PSC regime should be considered in the context of funds and real estate holding structures wherever a relevant UK entity appears. Certain UK registered companies, limited liability partnerships (“LLPs”) and Scottish partnerships are required to identify persons who have significant control (“PSCs”) over their interests and affairs by publicly disclosing and maintaining their details in a “PSC Register”.
The PSC legislation is intended to promote transparency within UK holding structures by making information on beneficial owners publicly available. Individuals can meet the PSC criteria by virtue of direct or indirect interests in the underlying entity and UK companies (and overseas companies that are listed in the UK or on certain overseas markets) may also appear on the PSC Register. More than one person or registrable legal entity may appear on an entity’s PSC Register.
The PSC regime analysis is not always straightforward and there can be a number of factors to take into consideration. Failure to comply however, carries criminal penalties, meaning it is important to get it right.
Who does the PSC regime apply to?
The PSC regime has always applied to UK companies and LLPs since its inception in April 2016 but since June 2017, it has also applied to Scottish limited partnerships and Scottish general partnerships whose partners are all corporate bodies (“Eligible Scottish Partnerships”).
In general, UK companies subject to transparency obligations under the Financial Conduct Authority's Disclosure and Transparency Rules (or their relevant overseas equivalent) will be exempt from the requirements but further analysis should be undertaken. The rules as they apply to such companies are outside the scope of this note.
The requirement to maintain a PSC register does not currently apply to other 'non-corporate' entities, such as English limited partnerships.
What do you need to do?
1. Time periods and notification obligations
An entity subject to the PSC Regime has 14 days from obtaining PSC information to notify Companies House of the individual(s) that satisfy the tests to qualify as a PSC.
2. What are the conditions for qualifying as a PSC?
A PSC is an individual or relevant legal entity who meets one or more of the following “Conditions”:
- holds, directly or indirectly, more than 25% of a company's shares (or for LLPs and Eligible Scottish Partnerships, more than 25% of the surplus assets on winding up) (Condition 1);
- holds, directly or indirectly, more than 25% of voting rights in the company, LLP or Eligible Scottish Partnership (Condition 2);
- holds, directly or indirectly, the right to appoint or remove a majority of the company's directors (or for LLPs and Eligible Scottish Partnerships, a majority of those involved in management) (Condition 3);
- has the right to exercise, or actually exercises, significant influence or control over the company (Condition 4); or
- has the right to exercise, or actually exercises, significant influence or control over a trust or firm that is not a legal entity, and meets one of the conditions above (Condition 5).
A “firm” for the purposes of Condition 5 is any entity which does not have legal personality under the law by which it is governed. Partnerships without legal personality, including English limited partnerships, are “firms”. LLPs and Eligible Scottish Partnerships have legal personality and are not “firms” under these criteria.
i. Conditions 4 and 5: “Significant Influence or Control”
The meaning of “significant influence or control” is important to understanding the scope of the Conditions. There is statutory guidance on the interpretation of the terms, which provides a number of non-exhaustive principles and examples to help determine who falls within the regime.
As the guidance details, “significant influence” and “control” are alternatives. Where a person can direct the activities of a company, trust or firm, this would be indicative of “control”. Where a person can ensure that a company, trust or firm generally adopts the activities which they desire, this would be indicative of “significant influence”.
There is no requirement for “significant influence” or “control” to be asserted with a view to making economic gain and the particular circumstances would always need to be considered. But the following examples, if capable of being exercised absolutely by an individual, are likely to result in the individual meeting the criteria:
- rights to determine the adoption/amendment of business plans;
- ability to appoint/remove key persons;
- approval rights over strategic business decisions, including decisions in relation to third-party financing.
This is why the PSC Regime is relevant to real estate and fund holding structures, even where economic ownership may suggest otherwise. For example, analysis of the PSC regime is likely to need careful consideration where investors have ceded day-to-day control for the affairs of the structure to a manager, trustees or one or more of the investors.
Rights for minority investors should also be considered but are unlikely to meet the criteria when exercised with the main objective of protecting capital. Here the statutory guidance refers to investor protection rights, such as the ability to veto borrowing outside of pre-approved limits, change the constitution of the entity and/or alter the nature of the venture’s business as examples that would not imply “significant influence” or “control” when exercised in this context.
ii. Who must be included on the PSC Register?
The PSC Register must include:
- Any individual who is a registrable PSC in relation to that entity; and
- Any relevant legal entities (“RLEs”).
- Relevant Legal Entities or “RLEs”
The focus of the PSC regime is on individuals and not on legal entities. But legal entities that can own and control companies are capable of being entered onto a PSC Register where such entities satisfy one or more of the conditions AND, in turn, are also subject to disclosure requirements ensuring information on their beneficial ownership is available in the public domain. In particular, an RLE would be entered as a PSC because:
- It is required to keep its own PSC Register; or
- It has voting shares admitted to trading on certain regulated markets (albeit further analysis would need to be done in this respect).
Not all RLEs are registrable on a PSC Register, however. An RLE is registrable in relation to another entity if it is the first RLE in the ownership chain. RLEs further up an ownership chain do not need to be included as the information on beneficial ownership can be discovered by looking at that RLE’s register. Unlisted companies registered overseas are generally outside the scope of the PSC regime and will not be capable of being registered.
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