Person with Significant Control – Five Years On
It has been five years since the Small Business, Enterprise and Employment Act 2015 brought about several changes within company law - one change being the requirement for a central registry of individuals who hold significant control over a company. This central registry is commonly referred to as the 'PSC (Person with Significant Control), register', even where the PSC is another company or entity. In the latter instance, the other company or entity will be known as an 'RLE' (Relevant Legal Entity) as they can, in some circumstances, satisfy the PSC conditions as if it were an individual. In this article, the use of the term PSC will refer to either an individual, company or other entity.
What represents a PSC?
Broadly speaking, a PSC will require their details to be registered where the following applies:
- The PSC owns more than 25% of a company’s shares
- The PSC owns more than 25% of a company’s voting rights
- The PSC has the right to appoint or remove a majority of the board of directors
- The PSC has significant influence or control over a company
- The PSC 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).
The company subject to the control must keep details of their PSC as part of their statutory registers and file the details with the central registry at Companies House. Failure to update and maintain the registers could result in criminal sanctions against the directors of the company, most notably a fine or a prison sentence (or both).
For further information about PSCs, please also refer to our previous article "Changes to the PSC Regime – what does this mean for you?".
What changes have been made since the implementation of the PSC regime in April 2016?
Initially, the PSC regime only applied to unlisted companies, limited liability partnerships and Societates Europaeae registered in the UK. A company could file any changes annually, along with its confirmation statement. However, from June 2017 listed companies on the Alternative Investment Markets (AIM) or AQSE Growth Market (formerly the NEX Exchange Growth Market) as well as unregistered companies were also required to register a PSC. Furthermore, any changes to PSCs must be made within 14 days of the change happening, in contrast to the previous annual reporting.
Further changes were made in January 2020 in line with new money laundering rules in the form of the 5th Money Laundering Directive (5MLD). Here, an obliged entity must report any discrepancies (that is to say, material differences of information) between the beneficial owner of a company and that of the PSC. Whilst under the 5MLD a beneficial owner does not have the same definition as a PSC, the requirement to report a discrepancy is based on the Companies Act definition of a PSC.
Obliged entities are entities such as financial institutions, law firms, gambling services, auditors and accountants and even art galleries (although this list is not exhaustive).
Simple errors such as typographical errors (Jon Smith instead of John Smith) do not fall under the obligation to report a discrepancy and the company can be contacted to rectify such errors. However, for example, the wrong person, PSC type, address or legal form (in the case of RLE's) will require a discrepancy report to be made. Reports can be made through the gov.uk website.
The impact of Brexit on the PSC regime
One of the entities captured by the PSC regime were UK registered Societates Europaeae (SE). Any SE's still registered in the UK at the end of the transition period (the period ending 31 December 2020) would automatically convert into a UK Societas, after which it could remain as such, be wound up or converted into a UK company. The PSC regime would therefore still apply to SE's regardless of the form it took after the transition period.
Otherwise, there do not appear to be any material changes as a result of Brexit, given that many of the European directives that brought the PSC regime into existence have now been transposed into UK domestic law.
Proposed Reform of the Companies Register
In May 2019, the government consulted on proposals to improve the accuracy of data on the Companies Register, including enhancing the powers of Companies House. The government's published response in September 2020 set out far-reaching proposals to change the nature of the register which would include how the details of PSCs are accurately recorded and verified. Under these proposals, the government is planning to strengthen the powers of the Registrar, including giving her discretionary power to query and check information before it is placed on the register. These new proposed changes will have an impact on the way a company is expected to keep records of its PSCs and how such information is registered at Companies House.
The Department for Business, Energy & Industrial Strategy (BEIS) has published three further consultations on aspects of the original proposals. The consultations, which closed on 3 February 2021, covered (1) improving the quality and value of financial information on the UK Companies Register, (2) on the Powers of the Registrar and (3) on implementing the ban on corporate directors. The link to the consultations can be found here.
Michelmores offers a full range of company secretarial services, including assistance with PSC's. If you have any queries on the PSC regime for your company or wish to ensure that you are fully compliant with all requirements, please contact firstname.lastname@example.org or visit the Michelmores company secretarial services page.