In relation to a company, a person with significant influence or control ("PSC") is an individual who meets one or more of the five conditions set out below:
- holding more than 25% of the shares;
- holding more than 25% of the voting rights;
- holding the right to appoint or remove the majority of the board;
- having the right to exercise, or actually exercising, significant influence or control over the company; or
- holding the right to exercise, or actually exercising, significant influence or control over a trust or firm which would satisfy one of the first four conditions if it were an individual.
The first three PSC conditions can be met directly or indirectly. Creating a group structure where the ultimate beneficial owner sits on top of a string of companies will no longer, of itself, protect a person's identity.
The fourth and fifth PSC conditions both refer to "significant influence or control". "Control" and "significant influence" are alternatives. According to draft statutory guidance, a person has "control" of a company where they "can direct [its] activities"; where a person can ensure the company adopts the activities which they desire, this is indicative of "significant influence". The draft guidance provides a non-exhaustive set of principles and examples which would be indicative of holding the right to, or actually exercising, significant influence or control.
The aim of the new legislation is to identify and disclose the individuals who ultimately own or control UK companies (or LLPs). A UK corporate entity that owns or controls a UK company will only be entered on that UK company's PSC register if that corporate entity is subject to its own disclosure regime, the rationale being that you can then look at that corporate entity's publicly available register to work out who the individuals are at the top. Overseas companies will generally not be entered on a PSC register and UK companies will need to look through them to the individuals behind them.
The new legislation requires a company subject to the PSC regime to:
- identify any PSCs in relation to the company and confirm certain information about them;
- record the details of the PSC(s) on the company's register;
- file their information annually with Companies House; and
- update the information on its own PSC register when the information changes and update the information at Companies House when the time comes for the company's annual filing.
If the company cannot immediately determine the identity of its PSC(s), it must take "reasonable steps" to identify them, and record the status of its investigations.
The PSC information that must be entered on the company's PSC register includes the individual's name, date of birth, nationality, service address, usual residential address (although this will not be public) and the date on which the individual became a PSC. Details of the relevant condition(s) for PSC status that are met by the PSC must also be entered.
The above requirements with respect to a company's own PSC register are modified slightly if a company takes up the option (expected to be available from June 2016) of maintaining certain information (including PSC information) on the public register at Companies House directly, without maintaining its own separate statutory registers.
Individuals who are PSCs in relation to a company are themselves under a corresponding duty to notify the company of their status and to respond to any notices from the company seeking confirmation of their status.
Companies (and their officers) and PSCs are subject to criminal offences for failure to comply with their obligations. Failure on the part of a PSC to provide PSC information will give the company the option of placing restrictions on the PSC's interests in the company, so that voting rights, dividends and other rights will be suspended in relation to those interests. A company may also give notice to other persons it knows or has reasonable cause to believe know the identity of a PSC (or other person likely to have that knowledge) and those other persons also commit a criminal offence for failure to comply.
To determine whether any individuals fall within the first three PSC conditions listed above, company officers should review their company's register of members and articles of association and identify blocks of shareholding over 25% and identify or try to identify direct or indirect voting rights over 25%. They should also check the company's articles of association to see if anyone has the right to appoint or remove the majority of the board.
Determining whether either of the fourth and fifth conditions, which refer to "significant influence or control", are met can be a matter of judgment. Examples given by the draft guidance include having absolute decision rights or absolute veto rights over decisions related to the running of the business, but "veto rights in relation to certain fundamental matters for the purposes of protecting minority interests" are unlikely on their own to trigger disclosure. A company will need to consider whether anyone who does not meet the first three conditions could have significant influence or control over the way the company is run, irrespective of any formal role.