13 June 2018
From 6 April 2016, most UK companies and limited liability partnerships have had to keep, and submit to Companies
House, detailed information about people with significant control (‘PSC’).
This will affect all farming companies and limited liability partnerships. The regime looks through nominee arrangements and trusts and asks which individuals have ‘significant control’ of the underlying entity. From 30 June 2016, with a few exceptions, the general public have had access to this information.
Failure to comply with the new regime can be a criminal offence. Directors of UK companies and members of LLPs must keep a PSC register. A person must answer questions asked by the directors about the level of their control over an entity, and there is a separate obligation to inform a UK entity if you have significant control over it. In addition to the criminal sanctions, a non-compliant shareholder or member of an LLP can have his or her rights (eg voting and the right to receive dividends) suspended by the company or LLP.
The changes stem from the Small Business, Enterprise and Employment Act 2015, which introduced new provisions in the Companies Act 2006 as part of the Government’s pledge to improve corporate transparency. This, in turn, is part of a wider international transparency initiative. For a person to be a PSC for a company they must:
- directly or indirectly own more than 25% of the shares (condition 1); or
- directly or indirectly hold more than 25% of the voting rights (condition 2); or
- directly or indirectly hold the right to appoint or to remove the majority of directors (condition 3); or
- otherwise have a right to exercise, or actually exercise,significant influence or control (condition 4); or
- hold the right to exercise, or actually exercise, significant influence or control over the activities of a trust or a partnership which itself satisfies any of the first four conditions (condition 5).
So far as the fifth condition is concerned, this may result in a settlor, protector or principal beneficiary of a trust being identified as a PSC. The Government’s guidance gives a number of examples where this may be the case, including where an individual has the right to remove the trustees.
The conditions listed are modified where the entity is an LLP. Condition 1 will be satisfied if an individual holds rights over more than 25% of the surplus assets on a winding up; and condition 3 is met if the individual has the right to appoint or remove those involved in management of the LLP.
Before making any entry on the PSC register it will be necessary to approach the people who are going to appear on it. If they are individuals, they will need to confirm that the details you have are correct. Officers of the company may wish to take this opportunity to ask some other questions namely:
- whether the individual is holding any shares as part of a nominee arrangement; and
- whether the shares are part of any other ‘joint arrangement’ with any other person which would give them significant control over the company.
Linked to the obligation to keep a PSC register are the changes to the necessary company filings. Companies are now obliged to issue a confirmation statement in place of the annual return, which must include the relevant PSC information. It is important to bear in mind that each case will depend on its own facts and professional advice should be sought if there is any uncertainty.