Under current proposals, January 2016 will see a change in company law with the aim of increasing accountability through transparency of corporate ownership, structure and control.
The new law introduces significant changes which will directly affect companies, shareholders and ultimate beneficial owners.
For those affected, it is important to understand the new law and the potential duties and obligations under it, and to take steps now to prepare for it.
Which companies will be affected?
The new requirements will apply to all UK companies, save those which are subject to specified separate disclosure requirements, such as UK listed companies. It is intended that the legislation will also apply to limited liability partnerships and European companies registered in the UK (societas europaea).
Looking further ahead, proposed changes to the European money laundering directive will also require the UK to extend the reach of the new legislation to other legal entities.
What are PSC Registers and how will they work?
Companies will be required to maintain a register containing specified particulars of any person with 'significant control' over the company, together with details of the nature of that control (PSC Register).
The PSC Register must be kept available for inspection at no charge and, where copies of all or part of it are requested for a proper purpose, the company must supply the same and may charge a fee.
The company must also provide details from its PSC Register to Companies House, where most of the details will be publicly accessible. Under current plans, such details will be available online, free of charge.
When will PSC Registers come into effect?
Under the current timetable for implementation, companies will need to hold their own PSC Registers from 1 January 2016.
From 6 April 2016, companies will need to submit information on their PSC Registers to Companies House as part of their annual confirmation statement, which will replace the annual return.
By 7 April 2017, therefore, Companies House should hold a PSC Register for all UK companies affected by the new legislation.
Who is a person with significant control?
The concept of a person with significant control is deliberately broad and includes any person who:
- directly or indirectly holds more than 25% of the shares in the company
- directly or indirectly holds more than 25% of the voting rights in the company
- directly or indirectly has the power to appoint or remove the majority of the board of directors of the company
- otherwise has the right to exercise or actually exercises significant influence or control over the company
- 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.
Further guidance on what constitutes 'significant influence or control' is expected in October.
In group structures, the new legislation includes detailed provisions to determine who is a 'registrable' person with significant control in respect of a particular company within the group. In some circumstances, where relevant disclosure requirements (in the UK and under the requirements of regulated markets in EEA states) create a visible chain of ownership and control, it may only be necessary to identify an immediate parent company on the PSC Register as a 'relevant legal entity'. However, it will be important for companies to understand how the provisions operate in order to ensure compliance.
What information must be included on PSC Registers?
The particulars of registrable persons on the PSC Register held by the company must include their:
- name
- residential address
- service address
- date of birth
- particulars of significant control over the company
Not all of this information will be made publicly available.
Protection regime
An application may be made to Companies House to omit material from the public register or to prevent disclosure of PSC Register information.
However, this will be limited to circumstances where there is a serious risk of violence or intimidation towards a registrable person or someone who lives with them. There will be no protection afforded for cases of commercial sensitivity or confidentiality.
While a successful application means PSC Register information will not be disclosed to the public or credit reference agencies, this will not restrict disclosure to specified public authorities.
This is a complex regime and specialist advice should be taken if an application is being considered.
Duties and penalties
The new legislation will impose proactive obligations both on companies and on persons with significant control.
Companies must take reasonable steps to identify those persons and legal entities which should be included on its PSC Register and must keep it up to date. If companies do not comply with their duties in relation to the PSC Register, they, and their directors, face criminal liability.
Registrable persons and legal entities must 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 will entitle the company, effectively, to freeze the interest until compliance. This may lead to a loss of dividend, voting and other rights while the interest is frozen.
Next steps
Until the guidance on 'significant influence or control' is released, the full impact on corporate structures is unknown. However, given the short timescale to proposed implementation, companies should already be taking steps to ensure they will be able to comply in time.
Our expert team can advise companies and potential registrable persons on all aspects of preparation, investigation and maintenance of PSC registers or applications under the protection regime.