10 things investment funds need to know about the UK’s new PSC register

Written on 25 Feb 2016

Do you have funds invested in UK companies or have any UK limited liability partnerships (LLPs) in your structures? If so, from 6 April 2016 the details of some of the partners in your structure may need to be listed on the UK’s “people with significant control” (PSC) register. Here are 10 things you need to know about the new PSC register regime.

1.  Every UK company and LLP will have to keep a PSC register

This includes wholly-owned subsidiaries and dormant companies. The only exception is for UK companies listed on certain stock exchanges (including the Main Market of the LSE, AIM, NASDAQ and the NYSE). A branch office (known as a UK place of establishment) is not a UK company and will not need to keep a PSC register. Neither will English limited partnerships or Scottish limited partnerships. But that will change: from June 2017, the regime will be extended to Scottish limited partnerships when the 4th Money Laundering Directive is rolled out across the EU. English limited partnerships do not have separate legal personality and so will remain outside scope.

2.  The register will reveal the people who ultimately own or have “significant control” over the company or LLP

The new regime is intended to increase corporate transparency with the policy aim of combatting money laundering, terrorist financing and tax evasion.

3.  The register will record identifying information

As well as the individual’s name, service and residential address, country of residence, nationality, date of birth and date on which they became a PSC, the register will record how the person qualifies as a PSC. If the individual holds their interest through an entity which itself has to keep a PSC register or through a company listed on certain stock exchanges, information about that entity will be recorded instead of information about the individual. This stops duplicate information having to be recorded but still allows beneficial ownership to be tracked through chains of entities.

4.  The register will be public

Each register will be open to public inspection. And, from 30 June 2016, the information on it will have to be filed at the UK’s Companies House and will be freely available online – although the residential address and day of birth will be supressed. You can only apply to keep PSC information private if publicly revealing your connection would put you or your family at serious risk of violence or intimidation.

5.  The “significant control” test is complicated

A company or LLP may have multiple people with significant control over it or it may have none. Here’s an overview of the test and the likely outcomes for fund structures:

  • For investments in UK companies: anyone who holds, directly or indirectly, more than 25% by nominal value of the issued share capital, more than 25% of the voting rights or rights over the majority of board appointments or removals will qualify. So will anyone who has the right to exercise or actually exercises significant influence or control over the company (e.g. by having veto rights over the company’s business) or – and this is crucial for funds – over a trust or firm that has significant control over the company. There are specific provisions relating to indirect holdings through chains of entities, joint interests and arrangements, nominee arrangements and interests held by way of security.
  • If you have a fund invested in a UK company, the fund is likely to meet the test: but who goes on the register? In most cases, we expect that only the general partner of the limited partnership fund vehicle which made the investment will have to be registered. There are special rules for limited partnerships which mean that limited partners will only have to be registered if they exercise significant influence or control in their own right – which is unlikely to occur in the case of English limited partnerships where the limited partners do not take part in the management of the limited partnership’s business. And there are safe harbours for, amongst others, those giving professional advice and direction (e.g. investment managers) and those acting in their role as director, or on behalf of their employer, (which should cover people you have appointed to the board of your portfolio companies) that mean that they will not normally be registrable.
  • For your UK LLPs: anyone who holds, directly or indirectly, more than 25% of the voting rights in the LLP, rights over more than 25% of the surplus assets of the LLP on a winding up or rights over the majority of appointments or removals of those involved in the management of the LLP will qualify. Again, so will anyone who has the right to exercise or who actually exercises significant influence or control over the LLP (e.g. someone who is likely to receive more than 25% of the LLP’s profits or someone who has veto rights over the running of the LLPs business) or over a trust or firm that has significant control over the LLP. You will need to analyse the rights of the partners in your UK LLPs to see if any of them are registrable. There is a safe harbour for, amongst others, designated members who are not treated as having significant influence or control only by fulfilling the responsibilities of that role.

6.  The nationality or residence of the people with significant control is immaterial

If someone has significant control over the UK company or LLP, then they will be registrable regardless of their own nationality or place of residence.

7.  Failure to comply is a criminal offence

Every company and LLP will have a duty to take reasonable steps to identify the people it knows or suspects to have significant control over it. It will do this by sending notices asking for information from the registrable people themselves or from anyone else who it thinks has the necessary information. There will also be a duty on someone who has significant control to tell the company or LLP and provide it with the necessary information. Failure to comply could result in prosecution of the company, its directors and company secretaries or the LLP and its designated members (as appropriate) as well as the registrable people, with a liability on conviction to a maximum of 2 years’ imprisonment and a fine.

8.  The register cannot be blank

There are various specific holding statements which will go on the register while a company or LLP is investigating its PSC register information or if it cannot obtain the information it needs.

9.  If a person doesn’t provide their information, their interest in the company/LLP could be frozen

Companies and LLPs will be able to serve a “restrictions notice” on someone who fails to provide information when asked. An interest (e.g. shares in a company or rights in an LLP) which has a restrictions notice applied to it cannot be transferred, cannot be voted (and cannot exercise any of their other rights) and cannot receive dividend or capital payments (other than on a liquidation). In the case of an interest in the company, the person cannot be issued with any further shares.

10.  Osborne Clarke LLP can help

We can help the UK entities in your structures comply with their obligations and also advise the partners in your structures on their PSC status. Please contact your usual Osborne Clarke LLP contact.