Are you ready with your Persons with Significant Control Register?

Background

In 2014, the Department for Business, Innovation and Skills (BIS) concluded a consultation on "Transparency and Trust: Enhancing the transparency of UK company ownership and increasing trust in UK business". One of the key policies adopted following the consultation was the creation of a publicly accessible central registry of UK company beneficial ownership information and a requirement on UK companies and limited liability partnerships (LLPs) to maintain a register of significant beneficial ownership, which is to be filed at Companies House. The intent is to identify ultimate beneficial owners of companies and LLPs, terminology which reflects disclosure obligations aimed at policing money laundering rules.

From April 2016, amendments to the Companies Act 2006 (CA 2006) will require certain companies and LLPs to create and maintain a register (PSC Register) of persons with "significant control" (PSC) over the company or partnership and to make that register public.

This advisory answers a series of questions designed to guide you through the applicable PSC Register rules and assist you to prepare a PSC Register for your company/partnership.

Who must have a PSC Register?

1. A company that is formed and registered under the UK Companies Acts, unless that company is also a "DTR5 Issuer". A DTR5 Issuer is a company whose Home State for regulatory purposes is the UK and whose securities are admitted to trading on any European Economic Area (EEA) regulated market. Such an issuer will be subject to Chapter 5 of the Financial Services Authority's (FSA) Disclosure and Transparency Rules, and is therefore already subject to disclosure obligations as to its significant shareholders.

2. An LLP and a Societas Europaea (SE). The draft provisions in CA 2006 do not yet extend to LLPs or SEs but HM Government has stated that the PSC Register requirements will also apply to them.

Who is a PSC?

3. An individual who:

3.1.1 either alone or with others, holds directly or indirectly more than 25% by nominal value of the company's shares, or the right to more than 25% of the company's capital or profits; or
3.1.2 either alone or with others, holds directly or indirectly more than 25% of the voting rights of the company; or
3.1.3 either alone or with others, holds directly or indirectly the right to appoint or remove a majority of the board of directors of the company; or
3.1.4 has the right to or actually exercises "significant influence or control" over the company.¹

4. An individual who has significant influence or control over the trustees of a trust or members of a firm, which trust or firm is not a separate legal entity and if those trustees/members fall within the conditions outlined in 3 above (or would so fall if they were individuals.

Must anyone besides a PSC appear in the PSC Register?

5. Yes, subject to 7 below, a "relevant legal entity", as well as a PSC (who is by definition an individual), may need to be identified in a PSC Register. A "relevant legal entity" for this purpose is a legal entity (a body corporate, or a firm which under its governing law has separate legal personality) that would be a PSC were it an individual, and is either a UK Companies Act company or a DTR5 Issuer (see 1 above) (i.e., the relevant legal entity itself is subject to a disclosure regime).

6. Statutory regulations (none yet issued) may specify others to be considered as relevant legal entities.

Are all PSCs and relevant legal entities registerable in the PSC Register?

7. No. A distinction is drawn between registerable, and non-registerable, individuals and relevant legal entities. An individual or relevant legal entity is not registerable if they hold their interests or rights only through other relevant legal entity(ies) over each of which they have significant control (i.e., the registerable individual or entity is that which is lowest in a controlled structure chain above the company/LLP in question). The aim is to avoid duplicative layers of disclosure obligations.

How do I go about working out who are the registerable individuals and registerable relevant legal entities for my company?

8. Look at each immediate member of your company and ask:

8.1 Is the member an individual with significant control (i.e., satisfying one or more of the conditions outlined in 3 above)? If yes, the individual is a registerable PSC.

8.2 Is the member:
8.2.1 a trust or entity (whether incorporated or unincorporated) without separate legal personality;
8.2.2 does an individual have significant influence or control over the trustees of that trust or members of that entity; and
8.2.3 would those trustees/members fall in one or more of the conditions outlined in 3 above (or would they if they were individuals)? If yes, the individual referred to in 8.2.2 is a registerable PSC.

8.3 Is the member a body corporate/firm with separate legal personality which is also a "relevant legal entity" (see 5 above)? If yes, the entity is registerable and you need not look above that member. If no (i.e., it is a body corporate/firm with separate legal personality but is not also a "relevant legal entity" (see 5 above)), then repeat questions 8.1, 8.2, and 8.3 in respect of its members, up the chain above it, and so on.

What information must be in a PSC Register?

9. "Required particulars" must be included for each registerable person with significant control and each registerable relevant legal entity.

9.1.1 For an individual: name, service address, country/state of usual residence, nationality, date of birth, and usual residential address. The usual residential address will be protected information, and so will be omitted from the Companies House central register and from information made available by the company for inspection. It will be available to specified public authorities and credit reference agencies (CRAs).
9.1.2 For an entity which is to be treated under the PSC rules as an individual: name, principal office, legal form and governing law;
9.1.3 For a relevant legal entity: corporate/firm name, registered/principal office, legal form and governing law, applicable company register, and number (if any).

A PSC will be able to apply to Companies House for some or all of their information to be withheld from the public register and CRAs. The scope of this protection is in the draft PSC Regulations, consultation on which has just closed, but the detail of the protection regime is not yet final. Protection will basically be available on grounds of serious risk of violence or intimidation.

10. In all cases, the applicable conditions for significant control which are met must be specified (the detail of this disclosure is not yet final), as must the date of becoming registrable.

11. If a company has no registerable persons with significant control or relevant legal entities, that must be stated in the register. If it has reason to believe such do exist but it has not been able to identify or confirm them, likewise that must be stated. No individual's details must be included if they have not been "confirmed" (i.e. provided or confirmed by the person concerned or with that person's knowledge).

Where must a PSC Register be kept and who can access it?

12. A company must, subject to 13 below, maintain its PSC Register as one of its "statutory registers", like those of directors and members, and must keep it available for public inspection at its registered office. Regulations (none yet issued) may specify alternative permitted locations.

13. A private company may elect instead for its PSC Register to be kept only on the public register at Companies House.

When must I have a PSC Register and how often must I update it?

14. From June 2016 a "statement of initial significant control" must be filed at Companies House when applying to register a new company. A company already registered at Companies House must have a PSC Register from April 2016, and from 30 June 2016 must send the PSC Register information annually to Companies House with its "confirmation statement" (which replaces its "annual return").

15. A company which is subject to the PSC Register rules must:

15.1 take reasonable steps to find out any registerable person or registerable relevant legal entity in relation to it;
15.2 notify any such persons or entities to supply or confirm information;
15.3 notify others it believes have relevant information to supply or confirm; and
15.4 notify registerable persons or entities if it believes they have ceased to be such or their registerable particulars have changed.

Its obligations to investigate, collect, and update information are set out in the amendments to CA 2006. If the company becomes aware of a relevant change, it must update its register (subject in the case of information concerning an individual, to the 'confirmation' referred to in 11 above).

What sanctions are there?

16. Under the amended CA 2006, registerable persons and registerable relevant legal entities have proactive disclosure obligations; if those are triggered, that person or entity must notify the company within one month.

17. A company may apply sanctions to a person or entity which fails to comply with a notice described at 15 above or which fails in its duties outlined at 16 above, subject to certain safeguards. The sanctions are: purported transfers of the relevant interests will be void, rights attaching to those interests may not be exercised, and sums due on those interests will not be paid other than in a liquidation.

18. Various offences may also be committed by the company, its directors, and others under the PSC Register rules. These include:

18.1.1 the company and officers in default commit an offence by failure to comply with obligations to investigate, etc.; and
18.1.2 a person commits an offence if it fails to respond to a proper notice from the company, or knowingly or recklessly makes a false statement.

Where do I find the PSC Register rules?

19. New Part 21A CA 2006 (information about people with significant control); new Schedule 1A CA 2006 (references to people with significant control over a company); new Schedule 1B CA 2006 (enforcement of disclosure requirements) - all inserted by Section 81 and Schedule 3 of the Small Business, Enterprise and Employment Act 2015.

20. Statutory and non-statutory guidance to support implementation of the PSC Register, including as to what is meant by "significant influence and control" is not yet available (due October 2015).

21. BIS is consulting on draft "Register of People with Significant Control Regulations 2015" (PSC Regulations), including as to how the nature and extent of control will be recorded on the register, as to warning and restriction notices, as to fees for providing copies of the register, and as to the information protection regime.