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Looking through the corporate veil: the new PSC regime

6 April 2016 sees the coming into effect of the people with significant control (“PSC”) regime. Largely set out in the new Part 21A of the Companies Act 2006, the regime will require most UK companies to publish information about their beneficial ownership. This post answers a number of common questions we have received about the new rules.

  1. What is the new regime?

From 6 April 2016 certain UK companies and LLPs will need to prepare and hold their own register of people with significant control and from 30 June 2016 they will need to provide information to Companies House about their PSC register.

A PSC is an individual who meets one or more of the following criteria:

  1. owns, directly or indirectly, more than 25% of a company's shares; or
  2. controls, directly or indirectly, more than 25% of a company’s voting rights; or
  3. has the right, directly or indirectly, to appoint or remove a majority of the board of directors; or
  4. exercises or has the right to exercise significant influence or control over a company; or
  5. exercises or has the right to exercise significant influence or control over activities of a trust or firm which itself meets one or more of the first four conditions.

In relation to conditions 1 to 3 above, to hold those interests indirectly, a PSC must hold a majority stake in the companies along the chain (see section 7 below for a practical example of this). A PSC will hold a majority stake in a company if he:

  • holds a majority of the voting rights in that company;
  • is a member of the company and has the right to appoint or remove a majority of its board of directors;
  • is a member of the company and controls a majority of the voting rights by agreement with other shareholders or members; or
  • has the right to exercise or actually exercises “dominant influence or control” over the company.

  1. What entities will be required to publish a PSC register?

The requirement to produce a register applies to UK incorporated companies limited by shares, limited by guarantee and unlimited companies, with some limited exceptions. It also applies in some instances to societates Europaeae and limited liability partnerships.

The requirement to maintain a PSC register does not apply to the following kinds of UK companies:

  • Companies that are subject to Chapter 5 of the Financial Conduct Authority’s Disclosure and Transparency Rules (DTRs); and
  • Companies with voting shares admitted to trading on a regulated market in the UK or European Economic Area (other than the UK) or on specified markets in Switzerland, the USA, Japan and Israel.
  1. What information will be recorded on the PSC register?

For registrable PSCs, a company must record the following information on the PSC:

  • Name;
  • Date of birth;
  • Nationality;
  • Country, state or part of the UK where the PSC usually lives;
  • Service address;
  • Usual residential address;
  • The date the individual became a PSC in relation to the company (for companies preparing their register for publication in April, this date will be 6 April 2016);
  • Which of the five conditions set out in section 1 the PSC meets and a quantification of the interest where relevant; and
  • Any permitted restrictions on disclosing the PSC’s information.

A company must “confirm” the information they hold about a PSC before it is entered on the register. Information is “confirmed” if the:

  • PSC supplied the company with the information;
  • information was provided to the company with the PSC’s knowledge;
  • PSC was asked to confirm that the information was correct and the PSC provided such confirmation; or
  • company holds previously confirmed information and it has no reason to believe it has changed.

A company must also include details of any registrable Relevant Legal Entity (“RLE”). A legal entity is an RLE in relation to a company required to maintain a PSC register. A legal entity will be an RLE in relation to a company if:

  • the legal entity would qualify as a PSC in relation to such company if it were an individual (i.e. it satisfies one or more of the conditions set out in section 1); and
  • the legal entity is subject to its own disclosure requirements (i.e. it is required to maintain its own PSC register).

An RLE is registrable in relation to a company if it is the first RLE in the company’s ownership chain.

For RLEs, a company must record the following information on the RLE:

  • Name of the legal entity;
  • Address of its registered or principal office;
  • The legal form of the entity and the law by which it is governed;
  • A register in which it appears and its registration number (if applicable);
  • The date upon which it became a registrable RLE in relation to the company (for companies preparing their register for publication in April, this date will be 6 April 2016);
  • Which of the five PSC conditions set out in section 1 the RLE meets and a quantification of the interest where relevant.

The PSC register cannot be empty. If the company has no PSC/RLEs, certain official wording set out in Annex 2 to the current BIS non-statutory guidance must be inserted into the register. Furthermore, if a company has not yet identified its PSCs by 6 April 2016 or at any time at which there may be a change of the company’s PSCs, it must insert the wording in the register as set out in Annex 2 of the guidance. For example, if the PSC is yet to be identified, the following wording should be inserted on the register: “the company knows or has reasonable cause to believe that there is a registrable person in relation to the company but it has not identified the registrable person”. There is also prescribed wording in the guidance for identified PSCs that have unconfirmed particulars or when the company is still taking reasonable steps to find out whether there is a PSC or RLE in relation to the company.

  1. What information must be reported to Companies House and when?

Companies House will hold the PSC central public register. A company provides its PSC information with their annual Confirmation Statement (the replacement to the current Annual Return). A company will have to submit its first Confirmation Statement on its next annual return date following 30 June 2016.

All the information set out in section 3 above is reported to Companies House and the majority of it will be available on the central public register. The only information omitted from the central public register will be the PSC’s:

  • usual residential address (unless the residential address has been supplied as the service address); and
  • day of birth (although, this will be available for inspection by the public on the company’s own register (see section 6 below)).

All information will be available to law enforcement agencies and Companies House will release residential addresses to credit reference agencies and certain public authorities.

If a PSC may be in serious risk of violence or intimidation as a result of making public any of the information required to be released on the central public register, a company can apply for certain information to be suppressed.

A company must review the information lodged at Companies House at least once a year by completing the annual Confirmation Statement. Every change to a company’s PSC register throughout the year should be included on the Confirmation Statement.

  1. How often must a company’s internal PSC register be updated?

As soon as the company is aware that circumstances relating to their PSCs have changed, the register must be updated. If new information cannot be immediately entered on the register, the register should at least be updated to show (i) the date on which the information was no longer correct; and (ii) a statement on the status of the company’s new investigation of the new information (in the form of the relevant statements set out in Annex 2 of the BIS guidance).

New information can be entered on the register as soon as the company has:

  • been informed of the change;
  • obtained all of the required new information; and
  • in relation to PSCs only, “confirmed” the new information (see section 3 above).

If a company knows or has reason to believe that a change has occurred but requires further information to assess the situation, it must serve notice (in a form set out in Annex 3 of the BIS guidance) on the PSC/RLE as soon as practicable requesting the information.

  1. Who may access a company’s PSC register?

No person, entity or organisation will automatically receive copies of a company’s PSC register. Nevertheless, a company must keep its own PSC register accessible as anyone (i.e. an individual or an organisation with a proper purpose) may have access to the register free of charge or be provided with a copy of it for a fee at the option of the company (of no more than £12). Access is requested by formal notice to the company, which includes a statement as to the individual’s purpose in seeking the information. The company must respond within 5 working days of the request. To refuse a request, the company must apply to court. The company must not disclose a PSC’s usual residential address to an applicant wanting to access its PSC register.

As stated in section 4 above, all information will be available to law enforcement agencies and Companies House will release residential addresses to credit reference agencies and certain public authorities.

  1. Example: How should a company identify its PSCs/RLEs?

Below is a summary of the steps that should be taken to identify a registrable PSC/RLE in a chain of companies where the intermediate companies are foreign-incorporated and qualify as PSC/RLEs under PSC conditions 1 and/or 2 (see section 1 above) as these are likely to be the most common conditions qualifying an individual as a PSC or a legal entity as an RLE.

In the above example, companies Y and Z are UK incorporated and company X is a foreign-incorporated entity.      

     a. PSC register position of Company Y

  1. Individual A is a PSC in relation to company Y by holding, indirectly, 51% of the shares in company Y. This is because Individual A has a majority stake (see section 1 above) in company X (i.e. over 50% of the voting rights in company X), which in turn holds more than 25% of the share capital in company Y (i.e. PSC condition 1).
  2. Individual B is not a PSC in relation to company Y as he does not own a majority stake in company X, which means he does not have indirect control of company Y.
  3. Company X is not an RLE in relation to company Y as it is a foreign-incorporated entity and as such is not subject to its own disclosure requirements.​

Only individual A will be registrable on company Y’s PSC register as, in relation to company Y, company X is not an RLE and individual A is the only PSC.

This is because it is not necessary to register other RLEs/PSCs in relation to a company if the PSC/RLE holds the interest in the company through a chain of other RLEs.

  1. PSC register position of Company Z
    1. Individual A is a PSC in relation to company Z by holding, indirectly, 40% of the shares in company Z. This is because Individual A has a majority stake (see section 1 above) in company X (i.e. over 50% of the voting rights in company X), which in turn holds a majority stake in company Y, which in turn holds more that 25% of the share capital in company Z (i.e. PSC condition 1).
    2. Individual B is not a PSC in relation to company Z as he does not own a majority stake in company X, which means he does not have indirect control of company Y or company Z.
    3. Company Y is an RLE in relation to company X as (a) it would be a PSC were it an individual (i.e. it holds more than 25% of the share capital in company Z); and (b) as a UK company, it is subject to its own disclosure requirements (i.e. has its own PSC register).​

Both individual A and company Y will be registrable on company Z’s PSC register. This is because company X, by being a foreign-incorporated company, breaks the chain of disclosure requirements. Therefore, the chain needs to be restarted above company X, which means individual A is registrable.

For reference, if company X were a UK company the relevant PSC registers would look like this:

  • Company Z: only company Y is registrable (as an RLE).
  • Company Y: only company X is registrable (as an RLE).
  • Company X: both individual A and individual B are registrable (as PSCs) as they both own more that 25% of the share capital in company X.

For further information, please contact John Alder.