Client Briefing: Being clear about company ownership

As part of the government’s commitment to increase transparency in the ownership and control of companies, all UK companies [1] will shortly be required to identify and record the people who own or control their company. These people may be the same as existing shareholders, or they may be different.

The new PSC Register

From 6th April, companies will need to keep a “PSC Register”, which must contain details of (i) individuals who are people with significant control over the company (PSCs) (ie the ultimate beneficial owners) and (ii) relevant legal entities (RLEs).

• in respect of an individual PSC: name, service address, country or state of usual residence, nationality, date of birth and usual residential address.
• in respect of an RLE: the entity’s corporate name, registered office, legal form and law by which it is governed, register of companies in which it is entered and registration number (if applicable).

The PSC Register must never be empty – details of the current status of the company’s investigations into the identity of its PSCs must be recorded and updated in the PSC register. If there are no such persons, that fact will also need to be noted. The government has published official wording to be used, depending on the circumstance.

From 30th June 2016, the information on the Register will need to be filed at Companies House – either as part of the new annual confirmation process (which replaces the annual return in June 2016) or on a new incorporation. The PSC Register held by the company must be made available for public inspection free of charge or copies provided on request for an optional flat fee of £12.

Who is a PSC/RLE?

There are complex rules on who is to be regarded as a PSC, but broadly speaking a person will have significant control if he/she:

1. holds, directly or indirectly, more than 25% of the nominal value of the company’s issued shares;
2. holds, directly or indirectly, more than 25% of the voting rights in the company;
3. holds the right, directly or indirectly, to appoint or remove a majority of the board of directors of the company;
4. has the right to exercise, or actually exercises, significant influence or control over the company; or
5. exercises or has the right to exercise significant influence or control over a trust or firm, which itself meets any of the above conditions.

The government has spread the net deliberately wide, so as to include, for example, indirect as well as direct holdings of shares/rights, nominee arrangements and arrangements under which individuals jointly agree to exercise their rights in a certain way. The term “significant influence or control” has also been given a broad interpretation by recently published draft statutory guidance.

Where a company is owned by a legal entity, it will need to consider whether that entity is a relevant legal entity (RLE). An RLE is an entity which has significant control of the company in one of the ways described above, and is a UK registered company or a company with shares listed on certain markets (including the London Stock Exchange). The company only needs to register the first RLE in the chain above it.

The situation is more complicated where there are larger corporate groups which include any non-UK companies.

What action must the company take?

• Establish a PSC Register. The company must have a PSC Register from 6th April, even if it only contains a statement that the company has not yet completed taking reasonable steps to find out if there is anyone who is a registrable person or RLE.
• Take reasonable steps to identify PSCs and RLEs. This might include reviewing documents and information available to the company, for example the company’s register of members, articles of association and shareholders agreements. Interests in the company held by individuals, legal entities and trusts or firms, should be considered, and also whether there is evidence of any joint arrangements or of rights held through a variety of means that might ultimately be controlled by the same person.
• Confirm information. A PSC’s required particulars must be confirmed with the PSC before the information can be entered on the Register.
• Record the required particulars. As well as the required particulars, the company must give details of the date on which a person became a registrable person or RLE and the nature of his or its control. Prescribed wording should be used for this.
• File the information at Companies House from 30th June onwards.
• Make the Register available to the public on request, apart from residential addresses, which must be kept confidential.

Comment

For companies with simple ownership arrangements, compliance will be fairly straightforward, although it is still an additional administrative burden. It will be more challenging for companies with more complex ownership structures – particularly where trusts, partnerships or overseas companies are involved. If a company does not have the necessary information in relation to its PSCs, it will have to send notices to those that it suspects may be, or know the identity of, its PSCs. If someone refuses to provide the information, the company may have to consider imposing restrictions on any shares or rights they hold in the company. Note that a person who believes they may be a PSC is also under a legal obligation to voluntarily provide information to the company.

This is not just an academic exercise. Failure to provide accurate information on the Register and failure to comply with notices for information are criminal offences and may result in a fine and/or a prison sentence of up to 2 years.

The rules and procedures are complex and a company’s ownership structure will need to be carefully analysed. We can help clients through the process of taking reasonable steps to identify their PSCs and meet their obligations to record information in, maintain and update their PSC Register.

[1] The new rules also apply to LLPs, but this briefing is limited to their application to companies.

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The content of this page is a summary of the law in force at the date of publication and is not exhaustive, nor does it contain definitive advice. Specialist legal advice should be sought in relation to any queries that may arise.