Persons with significant control

If you operate your business through a company, recent changes have come into force and there are further changes on the horizon that have or will soon impact the way you conduct your business administration. The Small Business, Enterprise and Employment Act 2015 (SBEEA), is aimed at increasing corporate transparency and providing greater flexibility for companies when dealing with Companies House. One of the measures introduced by SBEEA is that, from 6 April 2016, companies will be required to maintain a register setting out the identity of those that hold significant control over the company (PSC Register).  The register must be made publically available; either at the registered office or at Companies House.

Who constitutes a Person with Significant Control (PSC)?

A PSC is defined as:

• a person that holds, directly or indirectly, more than 25% of shares or voting rights in a company; or 
• a person that holds the right, directly or indirectly, to appoint or remove a majority of the board of directors of a company; or
• a person that has the right to exercise or actually exercises significant influence or control over the business.

Companies and other entities may also be considered to be PSC’s in certain circumstances.  

What has not yet been made completely clear is what circumstances or behaviour will constitute significant influence or control. However, draft guidance from the Secretary of State says that: 

• if a person has “control” of a company or of the activities of a trust or firm they have the power to direct its policies and activities;
• “Significant influence” enables the person exercising the significant influence to 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;
• the right to exercise significant influence or control is a right which, if exercised, would give rise to the actual exercise of significant influence or control.

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 secretary and PSCs), including in some circumstances imprisonment.

What action should you take?

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 PSC’s;
• what checks you should have in place to ensure all PSC’s are identified, recorded and contactable, now and in the future.

It is important to keep registers up to date; not only to avoid sanctions, but also from a practical perspective. 

A prospective lender 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. 

Although this article focuses on the impact on companies, it is important to note that there are similar provisions requiring LLPs to also keep a PSC register.