New Transparency Regime for Companies – Persons with Significant Control

31 March 2016

Enhancing transparency obligations of UK companies

New rules are to be implemented in line with the government’s commitment to achieve transparency of the ownership of UK Companies and increase trust in UK businesses with the aim of tackling terrorist financing, money laundering and tax evasion.

With effect from 6 April 2016 most UK companies and Limited Liability Partnerships (“LLP”) will need to keep and maintain internally a publically available register of persons with significant control (the “PSC”) over the company or LLP.

From 30 June 2016 the affected companies and LLPs will be required to file this information at Companies House either as part of the new annual confirmation process (which will replace the annual return in June 2016) or on setting up a new incorporation.

Who will be regarded as a PSC?

Depending on the type of corporate structure an individual will be deemed to have significant control if he/she:

  1. For companies: owns or controls more than 25% of the company’s shares or voting rights or can appoint or remove the majority of the board or otherwise exercises significant influence or control over the company;
  2. For LLPs: ultimately holds rights over more than 25% of the LLPs assets on a winding up or holds more than 25% of the voting rights or can appoint or remove the majority of those involved in the LLP’s management or otherwise exercises significant influence or control over the LLP;
  3. If significant control is exercised by another entity, their details must be entered on the PSC register provided that entity is both “relevant” and “registerable” (known as Relevant Registerable Entity or “RLE”). Ordinarily a legal entity will be considered “relevant” if it would satisfy any of the above conditions for being a “person with significant control” if it were an individual; and is required to keep its own PSC Register or satisfies the disclosure requirements elsewhere, e.g. a listed company. Effectively, this means that UK companies, LLPs and some non-UK listed companies will be relevant but details of unlisted offshore companies cannot be recorded on the Register and instead details of any individual who is a PSC is necessary.  If no-one ultimately owns more than 25% as set out above then no individuals will be listed on the Register.

A legal entity is “registrable” in relation to a company when it is the first in the chain of ownership of that company.

How does a PSC register work?

Once identified individuals who have significant control over the company/LLP will need to be recorded on the PSC register, which will contain mandatory information about them including the following:

a)    name,

b)    date of birth (the day element of the date of birth will be normally omitted from the publically searchable register),

c)    residential address (if the PSC is also a company director, residential address will be available from Companies House only to credit reference agencies and certain public authorities, unless it is also the service address in which case it will be disclosed),

d)    service address,

e)    nationality,

f)     the date the individual became a PSC in relation to the company,

g)    which of the above conditions (listed under “Who will be regarded as a PSC?”) the individual meets, and

h)    any restrictions on disclosing the PSC’s information that are in place.

If significant control of a company is exercised by the RLE, its details must be recorded in the PSC register.

PSCs themselves are under a corresponding duty to notify the company/LLP within one month of becoming a PSC. Failure to do so will result in their committing a criminal office, which on conviction may lead to fines and/or imprisonment of up to two years. In addition, the company may apply sanctions in relation to shares held by the PSC and the rights attached to those shares.

The PSC register can never be left blank. The Statutory Guidance for the PSC register sets out the official wording which must be entered both on the company’s own PSC register and when filing information at Companies House.

Next steps

Although some of the legislation is yet in draft form, it is advisable for the UK companies and LLPs to start PSC register investigations ahead of new rules coming into force on 6 April 2016. Failure to take reasonable steps to identify PSCs amounts to a criminal offence, for which both the company and its officers will be liable. It will also be a breach of statutory duty for the directors to fail to take reasonable steps to identify PSCs.