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significant control

On 26 March 2015 Royal Assent was given to the Small Business, Enterprise and Employment Act 2015. The Act is the implementation of the Government’s proposals, aimed at increasing transparency in the ownership and control of companies, and increasing trust in UK business. Companies and shareholders need to be aware of the key changes in law, as the Act represents one of the most significant pieces of legislation affecting companies since the Companies Act 2006.

The Act is welcome news from an anti-corruption perspective, as the new rules help to identify and sanction those who hide their interest in UK companies to facilitate illegal activities. However, it is envisaged that the new rules are likely to cause upheaval for both companies and shareholders, due to the controversial new requirement to keep a register of people with significant control.

To allow organisations time to prepare, there is a staggered timetable for implementation of the new rules under the Act.

 

Register of people with significant control

With effect from January 2016 private and unlisted companies will need to start keeping a register of people with significant control over the company (PSC Register). Relevant legal entities are also to be included on the PSC Register if it would have been a person with significant control if it had been an individual.

From April 2016 the PSC Register will need to be filed at Companies House. Companies will then be required to confirm the information on the PSC Register to Companies House at least every 12 months. Significant control is defined as having (either alone or jointly with others) more than 25% of a company’s shares or 25% of the voting rights or the rights to appoint or control the majority of the board of directors.

With the interest of transparency in mind, this new requirement will no doubt be of concern for shareholders with over 25% of the equity or voting rights in a company, who under a declaration of trust appoint a nominee to hold the shares on their behalf. Such arrangements will no longer serve their primary purpose which is to maintain the privacy of the beneficial shareholder.

 

Information to be included on the PSC Register

In the case of an individual, their name, service address, country or state of usual residence, nationality, date of birth, usual residential address, details of the date on which a person became a registrable person and the nature of their control. In the case of a registrable relevant legal entity, its name, registered or principal office, registration number (if applicable), legal form of the entity and law by which it is governed.

The day element of a date of birth, an individual’s usual residential address and information that an individual’s service address is in fact his residential address will not appear on the public register. Only in circumstances where an individual is at serious risk of violence or intimidation arising from the company’s activities, can they apply to have the information held about them on the PSC Register removed from the public register.

 

Obligations and sanctions

The Act places a duty on a company to investigate and obtain information on its registrable persons. Companies are required to take reasonable steps to identify such persons, including serving information requests on shareholders and making enquiries of other persons where the company knows or has reason to believe that person knows the identity of a registrable person. If a company fails to investigate its registrable persons criminal penalties can be imposed which will also extend to its directors.

A disclosure obligation is also placed on registrable persons to notify the company of their status. A failure by them to do so is an offence, and the company can impose sanctions which can include a loss of voting rights and transfer obligations.

 

What’s next?

Guidance on the meaning of significant control is not expected until October 2015. The timetable for compliance with the establishment of a PSC Register is January 2016; this does not leave companies time to wait for statutory guidance before thinking about the preparation of its PSC Register, especially those with complex share structures. Companies need to act now and establish internal procedures for gathering information on any persons with significant control now and those persons going forward, to ensure its PSC Register is in place on time.

The requirement to maintain a PSC Register does not currently extend to limited liability partnerships, although it is expected that legislation is to be introduced to apply similar provisions to limited liability partnerships.

 

Other company law changes

Prohibition on corporate directors

To tackle the use of corporate structures to hide illegal activity, the Act prohibits companies from being appointed directors. With effect from October 2015 all company directors are required to be natural persons. Companies with corporate directors have a 12 month transitional period to remove and/or replace that corporate director.

Annual returns

Aimed at simplifying a company’s statutory filing requirements from April 2016 annual returns will be abolished. Instead, all companies will be subject to a new requirement to deliver to Companies House a confirmation statement, stating that the company has delivered all the required information in the last 12 months. This can be submitted at any time in the 12 month review period and a new review period of 12 months will be set from the date of the last confirmation statement.

Private company registers

From April 2016 a private company will have the option of keeping their register of members, directors, directors’ residential addresses, secretaries and PSC Register at Companies House, rather than having to maintain statutory registers that it holds itself. Companies should carefully consider whether or not they want to maintain any of these registers at Companies House. A single register at Companies House may well cut down administration, but the affect of doing so is that certain information that would not otherwise appear on the public register such as members’ addresses and full dates of birth of directors will be available for inspection.

Reasons of confidentiality may not be the only reasons why a company does not opt to maintain its register of members at Companies House. As a matter of company law a person is not recognised as the legal holder of a share until their name is entered into the register of members. The potential time delay by Companies House updating the register of members is likely to be somewhat of a worry for companies and shareholders.

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