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Q&A: Register of persons with significant control of companies

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The UK government is set to introduce a public register of ‘persons with significant control’ over UK companies.

How did we get here?

In July 2013, BIS published the discussion paper Transparency and trust: Enhancing the transparency of UK company ownership and increasing trust in UK business, which outlined proposals to make more transparent the ownership and control of UK companies. Central to these proposals was the establishment of a register of persons with significant control (a ‘PSC’) over UK companies which, in October 2013, BIS announced would be made publicly available.

In April 2014, BIS confirmed the intention to create a register of PSCs and additional measures to promote transparency in the ownership and control of UK companies comprising:

  • the cancellation of existing bearer shares and the prohibition of creating new bearer shares in UK companies;
  • changes to the directors’ disqualification regime, including taking into account a director’s overseas misconduct; and
  • a ban on corporate directors of UK companies (subject to certain exemptions).

The establishment of the PSC register is provided for in the Small Business, Enterprise and Employment Bill (‘the Bill’), which is now before Parliament.

Who is a PSC?

Aspects of the definition of a PSC will be finalised by an ‘expert working panel’, composed of company law specialists (more of which below). However, as currently drafted the Bill provides that an individual will be a PSC if he or she meets at least one of the following criteria:

  • direct or indirect ownership of more than 25% of a company’s shares;
  • direct or indirect ownership of more than 25% of a company’s voting rights;
  • direct or indirect right to appoint or remove a majority of a company’s directors;
  • he or she exercises or has the right to exercise significant influence or control over a company; or
  • he or she exercises or has the right to exercise significant influence or control over activities of a trust which itself meets one or more of the four criteria above.

Individuals who have a ‘joint arrangement’ in respect of the ownership of shares or exercise of rights will each be treated as holding them. As yet, no provisions have been drafted to capture ownership of shares by related parties, but it is likely that these may be caught by the ‘significant influence or control’ test.

What amounts to ‘significant influence or control’?

The short answer is, as yet, we do not know. Advisers will need to keep a close eye on the outcome of the expert working panel’s deliberations on ‘significant influence or control’ and any non-statutory guidance produced by BIS as to the interpretation of the term.

What obligations are imposed upon a UK company and its officers and what are the consequences of failure to comply? Do any exemptions apply?

UK companies will have a duty to investigate, obtain and update information on PSCs and will be given the means to procure such information by serving notices on someone the company knows or has reasonable cause to believe is a PSC; knows the identity of a PSC; or has ceased to be a PSC.

A criminal offence is committed by a UK company, and its officers, if the company fails to take steps or give notices required under the Bill. Such offences are punishable by imprisonment or a fine.

UK companies will be required to keep a register of PSCs, which must be available for inspection at their registered office. Private companies will have the option, however, of keeping information about their PSCs at Companies House on the public register rather than having to maintain a separate PSC register.

Wholly owned subsidiaries of UK companies that maintain a PSC register will not be required to maintain their own register.

UK companies which have securities listed on a regulated market that are subject to similar disclosure requirements, such as companies listed on the London Stock Exchange or AIM, will be exempted.

It is currently expected that UK companies will be required to keep a PSC register from January 2016 and to file this information at Companies House from April 2016.

What are the obligations upon a PSC and what are the consequences of failing to meet those obligations?

A person to whom a notice is addressed by a company requesting information in relation to a PSC (as described above) has a duty to comply with the notice. It is an offence to fail to comply with the notice or to knowingly or recklessly make a false statement when responding to the notice.

Additionally, the Bill grants companies the power to impose restrictions on the ‘relevant interests’ of a person who fails to comply with a notice, without the need to obtain a court order, subject to certain conditions having been met (including the serving of a warning notice). ‘Relevant interests’ comprise shares in the relevant company, voting rights or the right to remove any director and any dealing in, or exercise of, the relevant interests would be restricted until the person complies with the original notice.

Someone who has not received a notice but knows, or ought reasonably to know, that he is a PSC and that his details are not already registered on a company’s PSC register, will have a duty to notify the relevant company if such circumstances continue for at least one month.

What information must be included on the PSC register?

The PSC register must include the name, service address, country or state of usual residence, date of birth and usual residential address of the PSC. Additionally, the PSC register must note the date on which the person became a PSC and the nature of his control.

A PSC’s usual residential address will not be publicly available (either through the public register at Companies House or on a company’s own register). Additionally, it is anticipated that PSCs, their advisers or the relevant company will be able to make an application to suppress the PSC’s information from public disclosure; in the permanent under-secretary’s recent statement it was suggested that information would only be suppressed in the event of ‘serious risk of violence or intimidation as a result of the company’s activities’.

What impact is this going to have on LLPs, limited partnerships and overseas companies?

As currently drafted, the Bill does not capture LLPs or limited partnerships, but the government has sought consultation on this point. Likewise, overseas companies will not be caught by the requirement to maintain a PSC register.

How will the PSC register affect trustee shareholders?

Again, we do not have a definite answer to this question as yet. It is anticipated that trustees will be required to register as PSCs and that, in certain circumstances, a settlor may have to register as a PSC where he exercises some measure of control over the trust. Protectors may also be caught by the requirement to register where they have the power to remove and appoint trustees.