All UK companies, LLPs and European companies registered in the UK must keep a register of people with significant control from April 2016.

The Small Business, Enterprise and Employment Act 2015 (the Act) was given Royal Assent on 26 March 2015 and seeks to provide a more holistic approach to helping SME’s thrive in today’s economic climate.

One of the key provisions of the Act requires all UK companies (other than those which are subject to specified separate disclosure requirements, such as UK listed companies), LLPs and European companies registered in the UK to maintain a register of people with “significant control” over the relevant entity from April 2016. This register will be known as the “PSC Register” and those entities will therefore need to identify those persons, keep a PSC Register and provide this information to Companies House as part of the annual Confirmation Statement (formerly annual return) from June 2016.

So who is a person with significant control?

Broadly, a person with significant control over a company (a PSC) is defined in the Act as an individual that (either alone or as one of a number of joint holders of the share or right in question) meets one or more of the following conditions:

• the individual holds, directly or indirectly (i.e. via another company), more than 25 per cent of the shares in the company;
• the individual holds, directly or indirectly, more than 25 per cent of the voting rights in the company;
• the individual holds the right, directly or indirectly, to appoint a majority of the board of directors of the company;
• the individual has the right to exercise or actually exercises a significant influence or control over the company;
• the individual has the right to exercise or actually exercises significant influence or control over a trust or firm that is not a legal entity, which in turn satisfies any of the first four conditions over the company.

Does my company have any PSCs?

Where all the shares in a company are owned by individuals, the process of identifying PSCs in your company may be fairly straightforward.

Where companies are likely to face issues is when shares are owned by corporates. A legal entity’s details must be put on the PSC Register if it is a relevant legal entity.

A legal entity is relevant if it meets any of the conditions for being a PSC as stated above and:

• it keeps its own PSC Register;
• is subject to Chapter 5 of the Financial Conduct Authority’s Disclosure and Transparency Rules (DTRs); or
• it has voting shares admitted to trading on a regulated market in the UK or European Economic Area (other than the UK) or on specified markets in Switzerland, the USA, Japan and Israel.

If a legal entity is relevant, then this entity should be noted on the PSC Register. A legal entity might not be a relevant legal entity because it is a non UK entity that does not meet the relevant legal entity test, for example, it might be an unlisted company incorporated in the BVI. In those circumstances, you need to look at the ownership of that legal entity to determine whether any individuals or other legal entities might be PSCs or relevant legal entities (RLEs). To do this, you will need to look at the legal entity which holds the shares and repeat the tests for PSCs and RLEs in relation to that entity (and up the chain if necessary) until you find the first PSCs and/or relevant legal entities in the ownership chain – these are the entities and/or persons that will be listed on the PSC Register. You do not need to look beyond the first layer of PSCs and RLEs as the RLE will keep its own PSC Register.

So what do I need to do?

From April 2016 you will need to start maintaining this register and from June 2016 you will need to file this register with Companies House as part of the new annual return process.

The Act requires that all companies take reasonable steps to identify their PSCs and RLEs. Failure to do so could result in the company and the directors being punished by imprisonment or fines.

The Act also imposes a duty on PSCs and RLEs to respond to notices and provide information, or volunteer such information where the company doesn’t contact them. Failure to respond to a company’s request for information could entitle the company to place restrictions on their shares such as prohibiting transfers, prohibiting the exercise of rights or entitlements to distributions until a response to a request for information has been made.

What next?

The introduction of the PSC Register will result in greater corporate transparency which will affect companies, shareholders and ultimate beneficial owners. Given the sanctions for non-compliance, it is essential to understand duties and obligations under the relevant provisions of the Act and take steps now to prepare for it.

For further information or advice on identifying your PSCs and RLEs please contact a member of our Corporate team.