Company Law Action Point – People with Significant Control

New regulations come into effect from 6 April 2016 that require unlisted UK companies and LLPs to hold and make available to the public a statutory register of people with significant control or influence.

This is part of a government drive to improve corporate transparency and make it easier to find out who is controlling a company and so cut corporate crime. 

The PSC register must be prepared and kept available for inspection from 6 April 2016, and details filed with Companies House by 30 June 2016.

Will our company be affected?

All UK companies will be required to comply with this new regime except those which already disclose information about the ownership of shares such as those subject to the FCA’s Disclosure and Transparency Rules (e.g. LSE main market and AIM companies) and legal entities with voting shares admitted to trading on a regulated market in an EEA state other than the UK.

Who is a “Person with Significant Control”?

An individual who (either alone or as a joint holder of the share or right in question):

• Holds, directly or indirectly, more than 25% of the shares in the company, or is entitled to more than 25% of the surplus assets of the LLP;
• Holds, directly or indirectly, more than 25% of the voting rights in the company/LLP;
• Holds the right, directly or indirectly, to control the appointment and removal of a majority of the board of a company/LLP;
• Exercises (or has the right to exercise) significant influence or control over the company/LLP; or
• Exercises (or has the right to exercise) significant influence or control over activities of a trust or firm which itself meets one or more of the first four conditions set out above.

A UK registered company or LLP can also be a person with significant control if it meets one of the conditions above and would be classed as a person with significant control had it been an individual.

How should our business prepare?

In order to comply with this new regime, companies/LLPs are under a duty to take reasonable steps to find out if anyone is a registrable person or registrable relevant legal entity in relation to it. Companies/LLPs must have a People of Significant Control (PSC) register from 6 April 2016 and this PSC information will need to be sent annually to Companies House with your Confirmation Statement (previously, the Annual Return) from 31 June 2016.

Your business should:

1. Take reasonable steps to identify and notify the people you think do/may have significant control in your company and all of its affiliates. This should be done by notice, advising the recipient that they have a statutory one month time limit to provide a response.
2. Obtain the required registrable information from them and populate a company/LLP PSC register with this information. The required registrable information is name, service address, nationality, date of birth, residential address, date on which the individual became registrable in relation to the company in question and the nature of his/her control.
3. Provide this information to Companies House as part of the annual Confirmation Statement (previously the annual return).
4. Keep the PSC register at the entity’s registered office or other inspection address and make it available for public inspection on request (while redacting residential addresses).
5. Update the PSC register when information changes.

What if we fail to comply?

Failure to deliver a Confirmation Statement within 14 days of the end of the review period is an offence committed by the company/LLP and its officers, although they may have a defence if they have taken “reasonable steps” to do so. Where for some reason the PSC information cannot be provided, the company/LLP will need to provide an explanation on its Confirmation Statement (i.e. person concerned has failed to respond to requests).

Failure by an individual to respond to information requests or to provide accurate information for the PSC register is a criminal offence and can be punishable by a fine or imprisonment of up to two years. However, companies/LLPs will also have the ability to remove the individual’s voting rights (and impose other restrictions) if they fail to respond to the company’s enquiries.

Further Insight

What is the meaning of “significant influence or control”?

Significant influence enables the person exercising it to ensure that the relevant company/LLP adopts those policies or activities which are desired by the holder of the significant influence. Control is the power to direct the relevant company’s policies and activities.

“Significant influence or control” need not be directed towards the financial and operating policies of the company/LLP and does not have to be exercised by a person with a view to gaining economic benefits.

What is a right to exercise “significant influence or control”?

Where a person has absolute rights of veto or absolute decision rights (i.e. without reference to anyone else) relating to the running of the business of a company, this would constitute a “right to exercise significant influence or control”. Such business could include:

• Adopting or amending business plans;
• Changing the nature of the business;
• Additional borrowing decisions; or
• Establishing or amending profit-sharing, share option, bonus or other incentive schemes for directors or employees.

Where an individual has absolute rights of veto over the appointment or the majority of a board or management, this would also likely constitute a “right to exercise significant influence or control”.

However, veto rights for the purpose of protecting minority interests are unlikely to constitute significant control alone, nor are rights derived solely from being a prospective vendor or purchaser of a company.

What is “actual exercise of significant influence or control”?

A number of examples which would constitute actual exercise of influence or control as follows:

• A director owns key intellectual property rights in relation to the business and uses this to influence business related decisions;
• A non-director is regularly consulted on board or management decisions and their views influence such decisions;
• A founder is no longer a significant shareholder but their voting recommendations are generally followed by the other shareholders; or
• An individual has the power to amend or revoke the trust.

This is a non-exhaustive list and all relationships that an individual has with the company/LLP should be considered.

Who would not normally be considered as having significant control?

The following persons would not normally be considered as exercising significant control:

• Lawyers, accountants, management consultants, company mentors and financial advisers (acting in their professional capacity);
• Suppliers, customers or lenders (i.e. where the person is engaged in a third party commercial or financial arrangement;
• A regulator, liquidator or receiver;
• An employee acting in the course of employment;
• Directors with casting votes;
• A person making recommendations to shareholders or members on a one-off issue which is subject to a vote of all interest-holders; and
• A designated member of an LLP.

How we can help

This article is designed to give you a targeted overview of the new regulations and direction on how to comply. However, we recognise that all our clients are unique, with a wide variety of ownership and operational models that may need more detailed consideration when approaching compliance.

We have a company secretarial services offering, part of which is an annual compliance service that includes the maintenance of your company’s statutory books and registers in line with the company law regime and any of the above changes.

James Butler and the Corporate Team at Endeavour are on hand to answer any queries you may have in relation to this Company Law Update and how we can assist. Please feel free to get in touch at j.butler@endeavour.law or on 01642 610300.

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