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There are going to be a significant number of changes to company law which will affect all companies registered at Companies House in the UK. The Small Business, Enterprise and Employment Act 2015 (the Act) brought about a number of fundamental changes to UK company law and one of the confirmed changes, which is perhaps the most controversial, is the introduction of a central public registry of those individuals who hold significant control of UK companies – referred to in the Act as “People with Significant Control” or “PSC“.
Who constitutes a Person with Significant Control (PSC)?
A PSC is anyone in the company who meets one or more of the conditions listed in the Act. This is a person who:
- owns more than 25% of the company’s shares
- owns more than 25% of the company’s voting rights
- has the right to appoint or remove a majority of the board of directors
- has significant influence or control over the company
- has significant influence or control over a trust or firm (in the case of shares held by trustees or a trust or by members of a partnership)
Companies and other entities may also be considered to be PSCs in certain circumstances.
What has not yet been made completely clear is what circumstances or behaviour will constitute significant influence or control. Draft guidance from the Secretary of State says that, for example, a person has “control” of a company or of the activities of a trust or firm if they have the power to direct its policies and activities and a person exercises “significant influence” if he can ensure that the company or trust adopts those policies or activities which are desired by the holder of the significant influence. The “control” or “significant influence” need not be directed towards the financial and operating policies of the company and does not have to be exercised by a person with a view to gaining economic benefits from the policies or activities of the company.
There will no doubt be more commentary available on the question of what circumstances or behaviour will constitute significant influence or control as the practice of holding PSC registers develops.
What information must the PSC Register Contain?
There is a duty on companies to investigate, update and obtain information in relation to their PSC Registers. There is also a duty on potential PSC’s to provide information to the company.
Once identified, certain information must be recorded, including:
- in the case of an individual, his name, service address, country or state of usual residence, nationality, date of birth and usual residential address. Usual residential addresses are protected and won’t be placed on any public register;
- the date on which a person became a registrable person or registrable relevant legal entity and the nature of his or its control.
The government has stated that it intends to issue regulations that require companies to include the following on the PSC Register:
- which one or more of the specified conditions for being a PSC (as set out above) the PSC meets; and
- the level of interest (such as between 25-50%, more than 50% to 75% or 75% or more) that the PSC holds.
This is the approach taken in the draft PSC regulations.
The consequences of failing to comply
A company can impose sanctions if its PSCs do not comply with their disclosure obligations (e.g. loss of voting rights and transfer restrictions). Criminal penalties may also apply to those that breach the rules (e.g the company, its directors, company secretaryand PSCs), including in some circumstances imprisonment.
What action should you take?
The company must obtain and update the necessary information about PSCs both on implementation of the new rules and on an ongoing basis. This will mean that companies will need to be constantly vigilant for signs of changes in control among their shareholders and take prompt investigatory steps as necessary. You need to consider and address the following:
- whether your PSC register should be held at your registered office or at Companies House;
- the identity of your current PSCs;
- what checks you should have in place to ensure all PSCs are identified, recorded and contactable, now and in the future.
There is no doubt that these new requirements are onerous and will substantially increase the burden and costs of compliance on UK companies. However, it is important to keep registers up to date; not only to avoid sanctions, but also from a practical perspective. A prospective buyer of your company or a security provider will insist upon inspecting the register and any inaccuracies or omissions are likely to cause unnecessary delay to the transaction in question. Ensuring that you have compliant registers now should avoid an increased administrative burden later down the line at what may be a critical time for the business.
Other changes
There are other company compliance changes introduced by the Act and all companies will be affected in some way, as the measures change legal requirements on companies, including what they file with Companies House. The changes were being phased over a period of 12 months and some of the changes have already been implemented – please see attached Summary of Key Changes for more details.
If you require further guidance on your obligations in relation to the changes in company filing requirements, the PSC Register or wider business administration, please contact any member of the Company Secretarial team of Michelmores or email cosec@michelmores.com.
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