The Rules: Spotlight falls on ownership transparency

MAJOR new transparency rules will soon be imposed on UK companies to combat tax evasion, money laundering and terrorist financing. They are also intended to boost trust and promote the country as a sound business and investment destination.

The PSC Register (Small Business, Enterprise and Employment Act 2015 (“the Act”) comes into effect next April to help create a full picture of both the legal and beneficial ownership of nearly all British businesses.

From then, certain companies must start keeping a register of all people and other legal entities who have ‘significant control’ over them, i.e. those who:

• Hold more than 25% of the company’s shares or voting rights;
• Have the right to appoint/remove a majority of the board of directors;
• May exercise ‘significant influence or control’ over the company; or
• May exercise, ‘significant influence or control’ over the activities of a trust or firm that meets one or more of these conditions.

Crucially, companies must not only collate and compile a register but also maintain and update records, as changes occur.

Achieving PSC Register’s objectives

The legislation will enhance clarity by making information that identifies individuals holding significant influence or control in a company publicly available. This will increase openness in businesses with complex structures, e.g. where those registered are based overseas.

However individuals/entities who wish to remain anonymous could add to the administrative challenges that the Act will bring – resulting in players on both sides incurring additional professional fees.

Many PSCs will be unwilling to give information for a number of reasons; remaining publicly anonymous or invisible to tax authorities or not wanting family and former spouses to know their investment profiles.

The legislation could also impact badly on some firms, e.g. where PSCs work with other, controversial companies or are notorious. As a result, consumers and businesses may shun them.

However, company officers/directors must take all reasonable steps to pursue them or risk criminal prosecution – and they can impose heavy sanctions against non-cooperating PSCs.

The true impact of the PSC Register remains to be seen – and many companies will be affected in different ways – but there is time to prepare.

What company officers must do

“Required particulars” must be included for each registrable person and/or each registrable, relevant legal entity with significant control.

These are: name, service address, nationality, date of birth and usual residential address. However, certain safeguards protect those who may be at risk of violence or intimidation. They include:

• Removing an individual’s DOB from the Companies House central register;
• Not publishing their residential address; and
• Applying to prevent the disclosure of any information recorded on the register.

The register information that must appear for a registrable relevant legal entity is: name, principal office, legal form, governing law and, applicable company register and number (if any).

First steps

Although PSC Register implementation has been postponed to April 2016, companies should not hesitate in preparing and putting in place the processes they need to comply.

From June 2016, when applying to register a new company, a “statement of initial significant control” must be filed. A company already registered at Companies House should have a PSC Register from April 2016 and, from June 2016, must send its PSC Register information to Companies House annually, with its ‘confirmation statement’ (replacing the annual return).

As such, Companies House will hold PSC information on all UK companies by April 2017.

Any business subject to PSC Register must:

• Take reasonable steps to find out any registrable person or legal entity;
• Notify all of them to supply/confirm information;
• Notify others it believes have relevant information to supply/confirm;
• Notify registrable people/ entities if it considers they have ceased to be – or if their registrable particulars have changed.

Failure to comply

Company officers failing to administer PSC rules – and non-complying individual PSCs and those who control legal entities that are PSCs – can expect fines and imprisonment. The amount of fines and lengths of imprisonment have yet to be determined.

In addition, any failure to respond to a company’s enquiries hands the firm the right (without court order) to disenfranchise all shares and impose other restrictions. This onerous penalty is very likely to make them take notice.

Significantly, all registrable individuals and relevant legal entities must proactively inform the company of their interest (or any changes to it) – regardless of requests received from the business.

Companies covered by PSC rules

The new rules apply to all UK companies formed and registered under the UK Companies Acts, except those subject to the disclosure requirements of the DTR 5 (e.g. London Stock Exchange and AIM companies). These will be subject to Chapter 5 of the Financial Services Authorities Disclosure and Transparency Rules and must already disclose significant shareholders.

Michael Cantwell, is a partner in the corporate department of hlw Keeble Hawson