The new UK PSC register and its impact on private clients and trusts

Written on 14 Mar 2016

From 6 April 2016 details of the individuals who ultimately control UK companies and limited liability partnerships (LLPs) must be recorded in a new “people with significant control” register – to be known as the “PSC register”.

The rules will affect every UK company (other than those which are publicly traded) and LLP
and throw up particular issues if the company is held by a trust or an offshore
company. The rules not only oblige the UK entity to maintain the register, but
also require the persons with “significant control” to provide and
update the necessary information, even if they are resident outside the UK. 

The register – which will be publicly available – must
contain the name, date of birth, address, nationality and country of residence
of all individuals who ultimately
own or control more than 25% of the shares or voting rights, or who otherwise exercise
significant control over the company or its management. 

Information will be publicly available

The register will
be open to public inspection but, more importantly, the “snapshot”
disclosed within the new annual return from 30 June 2016 will be freely searchable
online via the Companies House website. This will be a concern for private
clients who, for legitimate reasons, often like to keep their financial affairs
private.

Trustees will
also need to understand their obligations, how to report their interests in UK
companies and how to respond to the mandatory request letters generated by UK
entities.

You can find further information about the PSC regime on our
dedicated PSC
page
.

Who will this affect?

All UK companies
(other than publicly traded ones) and LLPs will have to maintain the register,
including wholly-owned subsidiaries and dormant companies. That’s over 3
million entities.

Who will have to go onto the PSC register?

Any individual
with “significant control”, regardless of whether they live in the UK. Broadly,
this is anyone who meets one or more of the following conditions:

  • holding more than 25% of shares or voting rights
    in the company;
  • holding the right to appoint or remove the
    majority of the board of directors of the company;
  • has the right to exercise, or actually
    exercises, significant influence or control over the company; or
  • has the right to exercise, or actually
    exercises, significant influence or control over the activities of a trust
    or firm, where the trust or firm itself satisfies one of the conditions above.

Where the individual exercises significant control through a
legal entity or a chain of legal entities, the first legal entity in the chain
which keeps its own PSC register or is listed on certain public markets must be
registered instead of the individual. These are known as “relevant legal
entities”.

Where UK companies are held by foreign companies, it will be
necessary to investigate the overarching ownership structure to identify any
individual or relevant legal entity with an indirect ‘majority stake’ – itself
a widely-defined concept.

How will trusts be affected?

The rules need to be
considered at two levels – first how they apply to the trustees, and then the
trust.

If a trust meets one of the
conditions set out above, then the trustees may need to be included on the
register:

  • individual trustees must be included as PSCs;
  • UK corporate trustees must be included as a
    ‘relevant legal entity’; and
  • offshore corporate trustees are not included but
    their ownership structure will need to be reviewed to identify any individual
    or relevant 
    legal entity with a direct or indirect ‘majority stake’. 

It is then necessary to identify
any individual who has ‘a right to
exercise, or actually exercises, significant influence or control over the
activities’
of the trust. This would include the right to:

  • appoint or remove trustees;
  • direct the distribution of funds or assets;
  • direct investment decisions of the trust;
  • amend the trust deed; or
  • revoke the trust,

or, as a matter of fact, the person influences how others
exercise these powers or how the trust is run.

These terms could include protectors, settlors and anybody
making investment decisions for the trust. Any individual or relevant legal
entity meeting this test will also need to be included on the register. Non-UK unlisted companies are never
registrable but again it will be necessary to look at their own ownership
structure.

Trustees should take steps now so that corporate trustees
know how to report their own ownership structure and, for all trusts that meet
one of the conditions, they can identify any persons with significant influence
and control. There will also be on-going
obligations to keep details up-to-date.

It may also be possible to plan around the new rules – for
example, substituting individual protectors with protector companies or
diluting shareholdings.

What does not fall
within the definition of “significant influence or control”?

The statutory guidance provides a non-exhaustive list of
roles and relationships which do not constitute “significant influence or
control”. Those who provide advice
or direction in a professional capacity are not required to be entered on the
register. This includes:

  • directors (if not caught by other provisions)
  • accountants;
  • management consultants;
  • investment managers;
  • tax advisors; and
  • financial advisors.

How will it work?

Every company will have a duty to take reasonable steps to
identify the people with significant control over it and to confirm that the
information is current at least every 12 months. There is a mandatory process
that all companies must follow to identify, notify and seek the consent of the
people to be included.

Anybody holding significant control has a duty to tell the
company of that fact and to provide the information required for the register.

The PSC register must never be blank. Even when a company is
in the process of taking reasonable steps to identify a PSC, the register must
say:

“The company has
not yet completed taking reasonable steps to find out if there is anyone who is
a registrable person or a registrable relevant legal entity in relation to the
company.”

The new law has teeth: a company will have the power to freeze
the interest of a person who has not provided the information requested by the
UK entity. Non-compliance can result in a criminal conviction. If a trustee fails to give their details to a
company in response to a notice they will commit a criminal offence, carrying a
potential sentence of two years and/or a fine. This sanction can also apply to a
company if they fail to take reasonable steps to identify a PSC.

How can Osborne
Clarke help?

We can help you to meet your obligations – particularly in
relation to more complex structures – or to plan around the new rules. Contact
a member of our private wealth team for assistance.