From 06 April 2016, companies and LLPs will be required to keep a register of people with significant control as part of their statutory company books. A failure to do so will be a criminal offence.
Companies, and any organisations or firms holding the company books, must from April onwards keep a register of people with significant control (PSCs).The process is not as simple as merely replicating the shareholders’ information, the company must instead go through a strict process to highlight all of the individuals who exert significant control within the company.
A company must take reasonable steps to find out whether there are individuals with significant control over the company. Briefly summarised, the instances in which a person will be a PSC are:
- directly or indirectly holding more than 25% of the shares;
- directly or indirectly holding more than 25% of the voting rights;
- directly or indirectly holding the right to appoint or remove a majority of directors;
- having the right to exercise, or actually exercising, significant influence or control; and
- having the right to exercise, or actually exercising, significant influence or control over the activities of a trust or firm.
An instance in which shareholders would indirectly hold more than 25% of the shares is when there is an arrangement between, for example, 3 shareholders who each own 10% of the shares, to exercise their rights together, and such shares therefore equal more than 25%. This highlights the need for the company to proactively examine the individuals with control of the company along with any formal or informal arrangements, and not merely to rely on share numbers.
Companies should write to PSC individuals asking whether they hold their interest on their own behalf or for someone else (and if so, that person’s contact details); and to obtain the necessary information to complete the PSC register. PSC individuals must comply with requests for further information about them to be entered into the PSC register, or the control they exert. Such responses must be within a month of the company serving the notice on them. Although PSCs are by definition individuals, if a legal entity has control in the company and meets the above requirements, its details should also be listed on the register.
A significant point for PSC individuals to remember is that they are legally obliged to contact the company within a month of becoming a PSC if they believe they should be on the register, but are not yet. A failure to do so will constitute a criminal offence.
In deciding who is a PSC, companies should examine their register of members, articles of association and all known agreements between shareholders, or that concern the removal of the majority of directors. In practice, obtaining this information and ensuring that it is kept fully up to date will be difficult. The issue will most likely arise in relation to people with indirect control, given that this form of control is much harder to judge. Companies are therefore responsible for understanding when a person may be a PSC, and taking sufficient steps to confirm this if a change of control arises.
It is also important to note that as of 30 June 2016, it will be necessary to supply this information to the public Companies House record as part of the annual Confirmation Statement (formerly the annual return). Newly incorporated companies will have to supply this information at time of incorporation.
To summarise, it is imperative that both companies and potential PSCs understand the new legal obligations and how to comply with them. A failure to do so could result in criminal liability, which can be avoided by following the new procedure in relation to the PSC register. If in doubt, it seems best for PSC individuals to contact companies they believe they may exert significant control over, as opposed to risking criminal liability.
If you wish to discuss any of the issues raised in this article please contact Chris Wills, Director, on 01872 226992 or
firstname.lastname@example.org or Melanie Brown, author of the article.
The information provided in this article is for general information purposes only and does not constitute legal or other professional advice and cannot be relied upon as such. Any law quoted in this article is correct as at 22 February 2016. Appropriate legal advice should be sought for specific circumstances before any action is taken. Copyright © Murrell Associates Limited, February 2016.