For more information or help with creating your PSC Register, contact the Clayton & Brewill office on 0115 950 3044 or click here to send us an email.
The requirement to keep a register of ‘people with significant control’ (PSC Register) was one of a number of changes contained in the Small Business, Enterprise and Employment Act 2015, which aims to increase transparency in the ownership and control of UK companies and help combat money laundering.
The PSC Register came into effect on 6 April 2016 and, since 30 June 2016, companies must provide the relevant information to Companies House.
This must be done within 14 days of the anniversary of the company’s incorporation date.
Before this new regime, companies only needed to record the immediate, legal owners of their shares. Under these new rules, companies will have to look beyond that to identify relevant individuals who ultimately have significant control of the company.
The requirement is to ‘take reasonable steps to identify’ every person who has, directly or indirectly, significant control over the company. Breach of these provisions by the officers of the company will be a criminal offence with sanction of fines or imprisonment.
The new rule applies to all UK private companies and LLPs. Some entities are excluded, including limited partnerships and charitable incorporated organisations.
The terms ‘significant control’ and ‘significant influence’ can be used interchangeably.
A ‘PSC’ will be someone to whom one or more of these five conditions applies:
1. The individual either directly or indirectly holds more than 25% of the company’s shares;
2. The individual either directly or indirectly holds more than 25% of the voting rights in a company;
3. The individual has the right to appoint or remove a majority of the company’s board of directors;
4. The individual exercises, or has the right to exercise, significant influence or control over the company;
5. The individual exercises, or has the right to exercise, significant influence or control over the activities of a trust or firm which is not a legal entity, and which itself meets one of the above conditions.
Conditions 1, 2, and 3 are arguably fairly easy to determine; 4 and 5 are more subjective.
*Adopting or amending the business plan
*Changing the nature of the company’s business
*Making any additional borrowing from lenders
*Appointing or removing the CEO
*Establishing or amending any profit-sharing, bonus or other incentive scheme for directors or employees
*Granting options under a share option or other share based incentive scheme
A person would also exercise significant interest or control if they are significantly involved in the management and direction of the company – such as ‘shadow directors’ – or if their recommendations are generally followed by shareholders with the majority of the voting rights in the company.
This for example could be where a company founder no longer has a significant shareholding but makes recommendations that generally followed by the controlling shareholders.
There are several types of individual that would not be classified as a person with significant control. These include:
*Professional advisers to the company – lawyer, accountant, management consultant, tax adviser, financial adviser, and so forth;
*Third party commercial connections – such as suppliers, customers, lenders;
*Regulators, liquidators or receivers;
*Employees acting in the course of their employment;
*Directors of a company, including – a managing director, a sole director, a non-executive or executive director who holds a casting vote;
*An individual advising shareholders on a one off occasion, which is subject to a shareholder vote.
For each PSC, companies must record the following information:
*Date of birth
*Country, state, or part of the UK where the PSC usually lives
*Usual residential address (note that this must not be disclosed publicly)
*The date he or she became a PSC in relation to the company (use 6 April 2016 for any existing PSCs)
*Which of the five conditions they meet for being a PSC.
*For the conditions regarding shares and voting rights, you must also record the level of their shares and voting rights within the following categories: More than 25% and up to 50% / More than 50% and less than 75% / 75% or more
You must confirm this information with each person before it is filed at Companies House.
If you have taken ‘reasonable steps’ to identify any individuals or legal entities meeting the PSC definition, then you should include the following text on your PSC Register:
‘The company knows or has reasonable cause to believe that there is no registrable person or registrable relevant legal entity in relation to the company’.
Equally, if you need to submit your statement and you haven’t finished compiling your PSC information, you will need to make an explanatory statement on the PSC Register instead.
Under the new regulations, companies have a responsibility to ensure their PSC Register is kept up to date. You must enter any changes and updated information on your Register and provide it to Companies House.
Information provided by companies to Companies House will form a publicly available, central PSC Register. Companies must also ensure their own PSC Register is available for inspection at their registered office address or provide copies if asked for them. Note that the residential addresses of PSCs must not be included.
Under the new regulations, people with significant control are required to notify the company of his or her interest or confirm their interest to the company and to respond appropriately to any requests for information. Failure to do this will be an offence and may also result in a loss of rights in the relevant company.
For many companies it will be a straightforward process to identify whether or not you have any ‘people with significant control’ and to gather the relevant information for Companies House.
For others however it can be more complicated, and care needs to be taken to prove that you are taking all ‘reasonable steps’ to identify any individuals that might be caught by one or more of the five conditions.