From 6 April 2016, all private limited UK companies, Societates Europaeae (SEs) and limited liability partnerships (LLPs) are required to keep what will be known as a PSC Register – a record of people who have significant ownership and control over the business.
From the 26 June 2017, the scope increased to include Scottish Partnerships (SPs) and Scottish Limited Partnerships (SLPs) and companies listed on small stock exchanges, including AIM.
Entities that the FSA regulates, and are therefore subject to the Disclosure Rules and Transparency Rules (DTR5) are exempt from the PSC regime. This does not include AIM-listed companies.
The requirement is in addition to that to keep other registers, such as that of directors and that of shareholders. The information must also be filed and maintained at Companies House on the Confirmation Statement. A company’s PSC register will be available for public inspection (including online from 30 June 2016).
The introduction of the register is a move that aims to reduce money laundering and increase transparency of corporate ownership and effective control. Similar controls will be put in place across the EU as the 4th Money Laundering Directive is implemented by other member states.
The requirements to keep a PSC register are set out in the Fourth Money Laundering Directive (4MLD), Part 21A of the Companies Act 2006 (the ‘Act’) (as inserted by the Small Business Enterprise and Employment Act 2015); The Register of People with Significant Control Regulations 2016; The European Public Limited-Liability Company (Register of People with Significant Control) Regulations 2016; and The Limited Liability Partnerships (Register of People with Significant Control) Regulations 2016.
Failure to provide accurate information is a criminal offence, and could result in a fine for the company and/or a prison sentence of up to two years for the directors. Additionally, a significant controller is required to notify or confirm the company (but not Companies House) of his or her interest, and not doing so could result in the removal of rights in the company.
What do companies and directors need to do to comply?
From 6 April 2016, directors will have the additional requirement (as well as these others) to:
- identify people with significant control over the company and confirm personal information with each of them
- create a PSC register and record the information on the register
When the PSC Regime was started, directors had to provide the information to Companies House as part of the annual Confirmation Statement (formerly the Annual Return). This, however, was deemed to be insufficient for keeping the information current (a requirement of 4MLD), so from 26 June 2017, the rules changed so that the directors or partners must update a company's or partnership's own register within 14 days of the change and update the information held by Companies House within a further 14 days.
Notification should be given using the appropriate forms PSC01 to PSC09 and LL PSC01 to LL PSC09 for changes to LPs and LLPs.
Identifying people with significant control
The definition of someone with PSC is a person who meets at least one of the following criteria:
- holds more than 25% of shares
- holds more than 25% of voting rights
- can appoint or remove the majority of the board of directors
Additionally, a PSC might also be some who:
- has the right to exercise, or actually exercises, significant influence or control over the company
- is a trust or firm without “legal personality”, which would meet one of the conditions above if it were a person
These are more complicated situations, unlikely to be relevant to the majority of SMEs in the UK.
Note that for groups of companies, or companies controlled by others, different rules also apply.
How to identify whether someone has significant control
The first condition – ownership more than 25% of voting shares – should be relatively easy to identify. You can look at the register of members interests, or perhaps previous annual returns or confirmation statements.
The other conditions require that you review constitutional documents – the articles of association and any shareholders’ agreement for terms that would give someone significant influence or control. The first is a public document, so any director or business advisor can do so easily. The latter is usually only available to shareholders, so directors who are not shareholders would be reliant on the shareholders coming forward.
Directors could extinguish their duty by writing to each shareholder asking him or her to confirm whether he or she is a PSC. They could also write to other people who may know who the PSCs are.
Failure to respond to either type of request is an offence. If a response is not given, directors should place restrictions on the shares or voting rights of the person or entity withholding information.
Three shareholders, Alan, Bea and Christie own 70%, 20% and 10% of a private limited company.
However, the articles of association have been amended so all three have an equal vote on matters relating to the appointment and removal of directors.
No individual can appoint the majority of the board, so Alan remains the only PSC.
Information that should be recorded on the register
Before information about a person can be recorded on the register, the details of that information must have been confirmed by the person as correct.
The information required is:
- full name
- date of birth
- country, state or part of the UK where the person usually lives
- service address (the address at which the person can be reached)
- usual residential address (this should be kept private for company use only)
- the date the person became a PSC in relation to the company (for existing companies, 6 April 2016)
- which of the conditions above are met, including which of the following categories proportional ownership of shares and voting rights lie:
- over 25% up to and including 50%
- over 50% and less than 75%,
- 75% or more
- the company must identify whether a person meets the fourth condition only if he or she does not exercise control through one or more of the earlier conditions
- whether an application has been made for the individual’s information to be protected from public disclosure
When it is not possible to provide this information, a statement explaining why the information is not available needs to be recorded. The register can never be blank. The government provides a list of all possible statements as to why information might be missing.
As with other registers, the PSC register should be available for inspection on request at the company’s registered office and copies available on request (except that Companies House information is available freely online now). The PSC’s usual residential address must not be included in the publicly available versions.
Individuals who may be at risk of violence or intimidation as a result of being on the register can apply to Companies House to have their information protected.
Next, you might want to read more about why it is a good idea to change your articles of association, and how the articles and the shareholders agreement are intertwined, and how voting power can be changed through use of a shareholders agreement.