The People with Significant Control (PSC) regime in the UK has been in force since 6 April 2016 and was further amended on 26 June 2017. Despite the legislation being in force for over three years, there is still confusion over completing the PSC register and subsequent filings at Companies House.
When helping clients determine the PSC of their companies, I have two rules of thumb:
- Make no assumptions; and
- It is not always black and white
The first place to start is always with the five conditions listed in Schedule 1A, Part 1 paragraphs 2-6 of the Companies Act 2006 (CA06).
Who can be a Person with Significant Control?
An individual will be registrable as a PSC if they meet one or more of the below conditions:
- Condition 1: Holds, directly or indirectly, more than 25% of the shares in a UK company.
- Condition 2: Holds, directly or indirectly, more than 25% of the voting rights in a UK company.
- Condition 3: Holds the right, directly or indirectly, to appoint or remove a majority of the board of directors of a UK company.
- Condition 4: Has the right to exercise, or actually exercises, significant influence or control over a UK company.
- Condition 5: Has the right to exercise, or actually exercises, significant influence or control over the activities of a trust or firm which in turn satisfies any of the first four conditions.
It is worth noting that it is very common for an individual to meet the first three conditions, and that condition 4 is not a "catch-all" condition. The Department for Business and Energy & Industrial Strategy has provided separate statutory guidance for condition 4.
Can a company be a PSC?
The general rule is that legal entities are kept off the PSC register. However, the exception is a relevant legal entity (RLE) that exercises significant control.
RLEs are:
- Legal entities that keep their own PSC register; or
- Legal entities whose voting shares are admitted on a regulated market in the European Economic Area (other than the UK), or on specified markets such as Switzerland, the US, Japan and Israel
An RLE is "registrable" as the PSC of a company if it is the first relevant legal entity in the company's ownership chain, otherwise it is non-registrable.
When should you comply?
Companies have an obligation to keep and update their own Persons with Significant Control register within 14 days of any changes.
Examples of when the PSC information will change are:
- a transfer of shares,
- a buy-back of shares, or
- an allotment of shares
Once a company has updated its own PSC register, it must file the appropriate PSC form(s) at Companies House within 14 days.
In the early days of the PSC regime, Companies House was not strict in monitoring whether the PSC information filed was accurate or correct. However, within the last 12 months we have seen letters from Companies House requesting that companies amend or provide a detailed confirmation as to reasons for their PSC determination.
What happens when you don't comply?
There are serious implications for non-compliance with the PSC regime, for the company, the officers of the company and those that are PSCs (individuals or RLEs). The various duties and obligations are listed in section 790 of the Companies Act 2006 and the penalty for non-compliance is either a fine or criminal prosecution (in some cases both). We are also aware that Banks are refusing to renew banking facilities with companies, if the PSC information filed at Companies House appears to be incorrect.
Conclusion
Re-capping on my two rules of thumb, there should be no assumptions when determining the Person with Significant Control and it's not always black and white, particularly in a large group structure. It is worthwhile taking the time to be accurate when completing the PSC register and making the filings at Companies House. The consequences of getting it wrong can be severe and detrimental to the business of any company.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
