Persons with Significant Control – Time to Act

“Greater transparency” shouts the media, as a response to the Panama Papers, but for UK companies and LLPs, that is already the way as a result of changes put in place long before news of the leak became public.

As from 5 April 2016 all UK companies, LLPs and other regulated entities are required, under company law, to maintain a register of Persons with Significant Control (“PSC”), just part of the wide-ranging transparency reforms introduced by the Small Business, Enterprise and Employment Act 2015 (another part of it being the abolition of bearer shares, which appear prominently in the Papers).

This register is the company’s record of who owns it (directly or beneficially); whilst it might be felt that such information is already available via the annual return on Companies House where share capital is stated, any company wishing to hide true ownership previously found it easy to do so via complex group structures, corporate directorships, nominee companies and offshore entities – and thanks to Panama we know how that can end up!

The register must contain details of any individual falling into any of the following categories:
  1. Owning more than 25% of the company’s issued shares (directly or indirectly);
  2. Holds more than 25% of the company’s voting rights (directly or indirectly);
  3. Has the power to appoint or remove the majority of the Board of Directors;
  4. Has the right to exercise significant influence or control over the company;
  5. Has the right to exercise control over a company or trust that meets one of the other 4 conditions.

Note – similar criteria apply to LLPs.

Whilst the first 3 points are black or white, points 4 and 5 introduce an element of judgement and, for anyone potentially caught by these, they will need to be careful as to how they interpret these.

Although it is the company’s obligation to maintain the register, the rules run both ways; a company must update if it should reasonably know that a PSC has changed, but likewise a PSC is under legal obligation to inform the company that he or she is a PSC.

The PSC register should be maintained at the company’s registered office but a company can elect to keep this electronically with Companies House instead – an option which will probably be widely adopted to streamline the administration of this change.

You may note that there is still an element of transparency missing from this – it is not publicly available! From 30 June 2016 annual returns will cease and instead be replaced by “annual confirmation” – ie you confirm to Companies House that what they know about your company is correct.  Whilst it sounds like just a rebranding, annual confirmations will include updating the PSC register (or, for the first one, submitting the PSC register) – as well as maintaining it on an ongoing basis whenever there are changes.

Rules around timings for annual confirmations are quite different too, something on which more information will be given in due course, when Companies House confirms all of the details.

Whilst the changes are broadly welcome and in line with the government’s transparency drive (although there may be some raised eyebrows from this statement amongst certain readers!), this does create a significantly different administrative task for UK companies, quite aside from any “commercial sensitivity” issues, commercial or otherwise, from which there are deliberately minimal options to avoid placing this in the public domain.

For any help with the changes please contact your usual G+E team or alternatively Alex Hird or Jackie Senior;

further information is also available from the Government’s website https://www.gov.uk/government/publications/guidance-to-the-people-with-significant-control-requirements-for-companies-and-limited-liability-partnerships.