PSC registers – what are they?
With limited exceptions, UK companies, LLPs and certain other corporate entities are required to identify and record the people who own or control them on a "register of people with significant control" (a "PSC register"). The PSC rules are aimed at achieving transparency in relation to the individuals who control companies and other entities and who previously might not have been identifiable because they sat behind opaque corporate or trust structures. The PSC regime was expanded in June 2017, to ensure that the UK had fully complied with its obligation to implement the Fourth Money Laundering Directive (4MLD). The amendments brought entities including "eligible Scottish partnerships" within scope, but in this article we have focused on the rules as they apply to companies rather than other entities.
Who can access a company's PSC register?
There are two kinds of own PSC register: the "internal" PSC register maintained by the company itself and the "central register" maintained by Companies House. Any person may inspect the company's own PSC register without charge and can, on payment of a fee, request a copy of some or all of a company's PSC register for a "proper purpose". As of 26 June 2017, the company is required to file with Companies House within 14 days of a (confirmed) change any updates to its PSC register, so that these can be reflected on the central register. 4MLD requires the central register to be accessible to anyone with a "legitimate interest"; the UK Government has gone further however and has made the central register at Companies House fully public.
Who is a PSC?
In relation to a company, a person with significant influence or control ("PSC") is an individual who meets one or more of five conditions:
- holding, directly or indirectly, more than 25% of the shares;
- holding, directly or indirectly, more than 25% of the voting rights;
- holding, directly or indirectly, 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.
Satisfying PSC conditions indirectly
An individual may satisfy one or more PSC conditions indirectly in relation to a company through another (intermediate) entity, or chain of entities, if that intermediate entity satisfies a condition directly and the individual controls the intermediate entity by holding a "majority stake" in it.
Do corporate entities need to be disclosed?
The aim of the legislation is to identify and disclose the individuals who ultimately own or control UK corporate entities. A UK corporate entity that owns or controls a UK company only needs to be entered on that UK company's PSC register if that corporate entity is subject to its own disclosure requirements, 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 are generally not permitted to be entered on a PSC register and UK companies need to look through them to the individuals behind them.
"Significant influence or control"
The fourth PSC condition refers to "significant influence or control". "Control" and "significant influence" are alternatives. According to 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 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.
Determining whether someone has significant influence or control can be a matter of judgment. Examples given by the Government's 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 needs 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.
What about companies that are held through trust structures?
Where a UK company is held through a trust structure, the PSC analysis will depend on the nature of the trust arrangement. Trustees who are individuals will need to be registered as PSCs if they themselves satisfy one or more of the conditions. If an individual has the right to exercise, or actually exercises, "significant influence or control" over the activities of the trust, that person will also need to be disclosed as a PSC under the fifth condition. An individual will have the right to exercise significant control over a trust if, for example, that individual has the right to appoint or remove trustees or a right to direct the distribution of funds or assets. An individual may "actually exercise" significant influence or control if he or she issues instructions, whether binding or not, which are generally followed, as to the activities of the trust.
What are the key requirements for corporate entities subject to the PSC regime?
The PSC legislation requires a company subject to the PSC regime to identify any PSCs in relation to the company and confirm certain information about them. The company must record the details of the PSC(s) on its own register (within 14 days of the information being confirmed) and file with Companies House the information recorded on the company's own register (within a further 14 days). The company is under a duty to update the information on the company's own PSC register if it changes and file any updated information with Companies House within the same 14-day periods. The requirements with respect to a company's own PSC register are modified slightly if a company takes up the option of maintaining PSC information on the public register at Companies House directly, rather than maintaining its own separate statutory registers.
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, both on its own PSC register and at Companies House.
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.
What are PSCs themselves required to do?
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.
Consequences of non-compliance
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.
Other transparency initiatives
The PSC register regime is one aspect of the wider corporate transparency landscape. The Government is introducing a register of beneficial ownership of trusts, the implementation of which is provided for in the Money Laundering Regulations 2017; originally planned for June 2017, the new register is now expected to become live later in 2017. The Government has also published a call for evidence on a proposed register of overseas companies owning UK property: see our May 2017 article, "Transparency update: overseas companies owning UK property".