PSC register requirements

The corporate regulatory landscape is ever changing. The government is under pressure to provide the public with transparency on the ownership and control of UK companies and limited liability partnerships.  Transparency comes in the form of the "Persons with Significant Control" register - known as the PSC register but there are grey areas where businesses can get stuck as we explain.

To help you understand the requirements we have explained the landscape for you.

The PSC register - why was it created?

Theoretically, the PSC register reduces tax evasion, and so increases HMRC’s receipts. It will be harder to use UK businesses for money laundering. Thus crime will theoretically fall which reduces public spending on the criminal justice system.

The Persons with Significant Control Register applies to all companies, although some limited exceptions include quoted companies. It applies, if you manage :-

• a Limited company;
• an Unlimited company;
• Certain public companies;
• an LLP limited liability partnership.

How is "significant control" measured for the PSC register

A person (this means an individual, a company, a trust, a partnership or any other entity) is regarded as having "significant control" if it directly or indirectly:

• Holds more than 25% of the nominal share capital; or
• Controls more than 25% of the votes at a general meeting; or
• Controls the appointment or removal of a majority of the board; or
• Exercises, or had the right to exercise, control or significantly influence:

Meaning of control

“Control” means the power to direct the business’s policies or activities. So, a person exercising “significant influence” must be able to ensure that particular policies or activities are executed.  It is often necessary to review shareholder agreements, investment agreements and possibly other corporate documents to determine significant control.

What information must be submitted?

The PSC register must include the names of the individuals with significant control, as well as:

• Their service address;
• Their country, or state, or part of the UK in which the individual is resident;
• Their nationality;
• Their date of birth;
• The date on which the individual obtained significant control; and
• The nature of the individual’s control over the business.

What are the potential legal or other risks?

Companies House and HMRC will scrutinise company structures to determine who really makes decisions.  This will often mean that shareholders or LLP members have to provide full disclosure.   Failure to disclose can give rise to penalties and criminal action as explained below so attention is required.

Businesses with registered legal entities owners can face challenges. The beneficial owners may not be the same, i.e. a set up where there is a nominee shareholder but there is a beneficial owner who actually makes the decisions. Here the beneficial owner is caught by the “indirect” inclusion. This also applies to overseas parents or shares held in trust.

Business must update the register if they “know or might reasonably be expected to know that a change to the persons with significant control has occurred”. UK businesses must include the PSC register information in their Confirmation Statements filed at Companies House.

Non-compliance incurs criminal penalties.  Penalities extend to the defaulting company’s :-

• Officers;
• Relevant individuals or entities e.g. shareholders or members who have not submitted the information requested.

What’s more, persons with significant control can have their voting rights removed, if they don’t comply with the company’s request for information.

Identity of directors

All UK directors must be natural persons. No UK Company may appoint corporate directors.  Hence it will be easier to identify who actually runs the company. All existing corporate directors will automatically cease to be directors one year after this measure comes into effect.

Companies have limited liability whereas individuals do not.  Directors now required to act personally, may want increased indemnities or insurance.

Directors duties apply to shadow directors

Shadow directors are now subject to the general duties that apply to directors: ‘where and to the extent they are capable of so complying’.

Now a company could litigate against the shadow director who breaches those duties.  Future regulations will clarify shadow directors’ duties, as some duties will not apply to shadow directors.

Board members or observers appointed by investors can get caught as shadow directors so care is required.

Protection of date of birth details

Companies House no longer shows the full date of birth. Hopefully, this reduces identity theft. It also mean it harder to hide a private company’s power base.