The Rules: Three things CFOs should know about PSC regulations

Thousands of companies in the UK could unwittingly be in breach of ‘People with Significant Control’ (PSC) regulations, writes Valerie Findlay, senior solicitor at Turbervilles Solicitors

THOUSANDS of companies in the UK could unwittingly be in breach of The Register of People with Significant Control Regulations 2016/339 (PSC Regulations). From 6 April 2016 many companies and limited liability partnerships (LLPs) are now required to keep a new statutory register recording the “persons with significant control” (PSC) of the company or LLP.

Failure to comply with the new rules is a criminal offence by both the company and its officers, conviction for which could result in up to two years imprisonment and an unlimited fine.

At first sight it may seem obvious who is likely to be a PSC (e.g. someone with a majority of voting shares or voting rights in a company) but the legislation is of course more complex and extensive in its reach. The legislation is aimed at greater transparency, but contrary to popular perception the PSC regulations do not necessarily identify all the beneficial interests in a company.

Will PSC regulations apply to your company?

The PSC regulations apply to most companies that are not already subject to transparency regulations as a company traded on a regulated or prescribed market and apply to certain public companies, a private company limited by shares or guarantee (including charitable companies and dormant companies), Societas Europea companies and unlimited companies. The regulations do not apply to  limited partnerships and Charitable Incorporated Organisations.

Who is a person with significant control?

An individual is a PSC if that individual directly or indirectly (through a majority stake in a legal entity or a chain of legal entities) holds any shares or rights in a company that meet one or more of five specified conditions:

–          holds more than 25% of the shares (by aggregate nominal value and includes preference or deferred shares) or a right to share in more than 25% of the capital or profits of the company;

–          holds more than 25% of the voting rights in the company;

–          has the right to appoint or remove a majority of the directors (holding a majority of the voting rights at meetings of the board on all or substantially all matters).

–          has the right to, or exercises, significant influence or control over the company

–          exercises such influence or control through a trust

Generally a share or right held in an individual’s name will be a direct interest but this must be investigated further e.g. where shares are held as nominee, jointly, or under a joint arrangement (e.g. a shareholders agreement) or by way of security. An individual has an indirect interest where they either have a majority interest in a legal entity which holds the relevant shares or rights in a company, or is part of a chain of entities each having a majority interest in the next entity in the chain ultimately holding such shares or rights. If any of those entities further down the chain from the individual is a relevant legal entity i.e. would have been a PSC if it had been an individual and has to maintain its own PSC register, then that relevant legal entity may be the PSC for the company at the bottom of the chain and not the individual.

The assessment of PSC is therefore complicated where there is a chain of entities. The place to start the review is at the bottom of any chain working upwards reviewing each entity.

What must a business do to comply with the PSC Regulations?

–          Make sure you take reasonable steps to identify registrable PSCs – this may involve a review of the company’s articles of association,  any shareholders agreement and further information on the  service of a notice on the registered shareholder

–          Confirm the information with that person (if they are an individual)

–           Compile a register of PSCs – using certain specific wording and notify the Registrar at Companies House when filing your first annual confirmation after 30 June 2016.