New law to reveal who controls the UK’s companies

Details of the individuals who ultimately control UK companies will be recorded in a new “people with significant control” register – to be known as the “PSC register” – which was passed into law by the UK Parliament on 26 March 2015. The law is part of a global move by governments and other organisations towards greater transparency in corporate structures, with the aim of combatting money laundering, terrorist financing and tax evasion.

Every UK company (other than those which are publicly traded) will have to maintain a PSC register. The register will name and contain information on individuals who ultimately own or control more than 25% of the company’s shares or voting rights, or who otherwise exercise significant control over the company or its management.

The UK Government expects companies to start maintaining the register from January 2016. The register will be open to public inspection and will be searchable online via Companies House from April 2016, according to the current Government schedule. 

Osborne Clarke comment

“The PSC register will be an additional administrative task for UK companies. Some companies may take time to get to grips with it.  And companies and individuals for whom publicity is a concern will need to start thinking about the impact of this legislation sooner rather than later.

“The UK is leading the way on this corporate transparency initiative, but the EU is not far behind with a public register of beneficial ownership forming part of the proposed 4th Money Laundering Directive currently going through the EU legislative process,” says Dipika Keen, Senior Corporate Training & Know How Lawyer at Osborne Clarke.

Who will this affect?

All UK companies (other than publicly traded ones, which are excluded because they are already subject to the FCA’s Disclosure and Transparency Rules) will have to maintain the register, including wholly-owned subsidiaries and dormant companies. That’s over 3 million companies. In the vast majority of cases, it will be easy for a company to identify who exercises significant control over it, if anyone. But companies with more complex shareholdings, for example private equity or venture capital backed companies, may not have an easy task. The Government estimates that the cost to business of setting up the register will be £417.4 million.

There will also be an impact on individuals who have significant control. They may find it uncomfortable to have their connection to a particular company revealed, for example where the company works in a sensitive sector or where the individual is a newsworthy person.

Who will have to go onto the register?

Any individual with “significant control” – regardless of whether they live inside or outside the UK. Broadly, this is anyone who:

• holds, directly or indirectly, more than 25% of a company’s shares;
• is entitled, directly or indirectly, to exercise (or control the exercise of) more than 25% of the voting rights in a company;
• is entitled, directly or indirectly, to appoint or remove (or control that appointment or removal) of a majority of a company’s directors; or
• has the right to exercise significant influence or control over a company.

There are specific provisions relating to indirect holdings through chains of entities, interests held through trust arrangements, joint interests and arrangements, nominee arrangements, interests held by way of security and limited partnership interests.

The Government will be publishing statutory guidance in the next few months on the “significant control” test which is likely to help when it comes to analysing more complicated structures.

How will it work?

Every company will have a duty to take reasonable steps to identify the people the company knows or suspects to have significant control over it, and to confirm that the information is up-to-date at least every 12 months.

There will also be a duty on someone who has significant control to tell the company of that fact and to provide the information required for the register. 

Companies will have to file the information which is on its PSC register at Companies House. The company’s register will be available for public inspection and the register held by Companies House will be searchable online.

The new law has teeth: a company will have the power to disenfranchise the shares of a person whom the company has reasonable cause to believe is a PSC but who has not provided the information required to be kept on the register. Failure to comply will be a criminal offence.

What will be on the PSC register?

The individual’s name, service address, country of residence, nationality, date of birth, usual residential address, the date on which they became registrable on the PSC register, and the nature of his or her control over the company. Residential address details can be protected in exceptional circumstances – the Government is consulting on what situations this exception will cover.

Are LLPs within the new PSC register regime?

LLPs are not within the new regime….yet. However, the new law does give the Government the power to extend the PSC regime to other types of entity by passing secondary legislation. The Government has previously stated that LLPs would be within the regime and has published a consultation on the topic but has not yet announced its final decision.

What next?

Over the next few months the Government will be publishing crucial guidance and secondary legislation. Osborne Clarke will be issuing guidance for specific sectors to help them comply with the new regime. For further information, please speak to your usual Osborne Clarke contact or any of the people listed below.