Every British company will soon be obliged to maintain a public register of persons with significant control over it. These people will have to give it information about themselves or face criminal penalties and, possibly, the suspension of their rights as shareholders.

How the new PSC regime is to come into force

On 25th January, the final version of the soon-to-be-enacted Register of People with Significant Control Regulations 2016 (the PSC regulations) was laid before Parliament for approval. In line with this, the Department for Business, Innovation and Skills (DBIS) has now published its final guidelines regarding the meaning of “significant influence and control” (it released the final amendments on 22nd February). The forthcoming PSC regulations are designed to activate and flesh out the new regime, which has its origin in the Small Business, Enterprise and Employment Act 2015.

The Small Business Act will, in due, course, oblige British companies, limited liability partnerships (LLPs), and other UK corporate entities to maintain registers of people with significant control over them (PSC registers), the better to allow interested parties to ascertain the identities of their ultimate beneficial owners. The Small Business Act empowers the Government to set out further details about its regime in regulations, and also to provide guidelines for the interpretation and implementation of certain aspects of it. This is what the PSC regulations are about to do. Similar provisions relating to the application of the new regime to LLPs are set out in the Limited Liability Partnerships (Register of People with Significant Control) Regulations 2016, which take effect on 6th April.

Which entities must maintain PSC registers?

The new regime will apply to all companies that are incorporated in the UK and are limited by shares or guarantee, all British LLPs and all societas Europaea. However, a company will be exempt if it is either (a) already subject to the reporting requirements of Chapter 5 (DTR5) of the Disclosure and Transparency Rules (which apply to all listed and AIM-quoted companies incorporated in the UK) or (b) is listed on a regulated market in another European Economic Area state or on certain other markets (in Israel, Japan, Switzerland, and the United States) specified in Schedule 1 to the PSC Regulations. Overseas entities that operate in the UK are not subject to the regime.

Who is a “person with significant control”?

This is an individual who meets one of the following criteria:

• he has direct or indirect ownership of more than 25% of a company’s shares;
• he has direct or indirect control of more than 25% of a company’s voting rights;
• he has the direct or indirect right to appoint or remove more than 50% of directors;
• he exercises (or has the right to exercise) significant influence or control over a company;
• he exercises (or has the right to exercise) significant influence or control over a trust or firm that meets one of the above conditions.

What does the DBIS take “significant influence and control” to mean? Among other things, its guidelines point to certain relationships, such as limited partnership interests or commercial lenders, which are not normally considered to constitute significant influence or control for anti-money-laundering purposes. They also list circumstances, such as the right to control key decisions relating to a business (e.g., the approval of the business plan, or veto rights over the appointment of a majority of the directors), that may be a sign of significant influence or control. Entities such as governments both national and local can be counted as persons of significant control.

Each company will have to mention “relevant legal entities” on its register; these are entities that would be PSCs if they were individuals and are subject to their own disclosure regime, for example the PSC regime or DTR5.

An individual or relevant legal entity will be considered to have indirect ownership or control of shares or rights for these purposes if it has a “majority stake” (in effect, a controlling interest) in a legal entity (an intermediate company) which is not subject to an applicable disclosure regime, and which therefore cannot be a “relevant legal entity” (e.g. most non-UK companies).  In other words, any such intermediate company (or chain of intermediate companies) should be “looked through”.

What are companies covered by the regime required to do?

Every relevant British company must be doing the following by 6 April 2016.

• Maintaining a register of persons of significant control.
• Taking reasonable steps to identify people it knows or suspects have significant control. The DBIS guidelines include the factors it should be considering.
• Serving statutory notices on any suspected PSC or relevant legal entity to require him (or it) to confirm whether or not he is a PSC or relevant legal entity and to provide certain specified information.
• Serving such notices on certain other persons, including people it knows or suspects to have knowledge of the identity of any PSC or relevant legal entity, or people it believes to have ceased to be PSCs or relevant legal entities, or people whose circumstances have changed in other ways.

In addition, from 30 June onwards, British companies must send the information on the PSC registers to Companies House when they make their annual confirmation statements (which will replace their annual returns). New companies must do this on incorporation. The information sent to Companies House will be available publicly at no cost on a single public register. Private companies will be allowed to maintain their PSC registers at Companies House, as long as none of their PSCs objects.

Any company’s failure to comply with these statutory obligations will constitute an offence on its part and indeed on the part of any company officer who “is in default.”

What must a PSC do?

Each person of significant control (or relevant legal entity) is obliged to provide the following.

• The information set out in any statutory notice that he has received from the company.
• The prescribed information, even if he has not received such a notice, as long as he knows or ought reasonably to know that he is a PSC (or relevant legal entity), that he has been one for at least one month, and that his details are not already on the PSC register. A similar obligation arises if there is any subsequent change in such information.

Failure to comply with a statutory notice or to comply with the general obligation to provide information is an offence, unless certain conditions are met. If any person fails to comply with a statutory notice served on him/it by a company, the company may give that person a warning notice that it intends to issue the person with a restrictions notice with respect to his/its interests in the company. If and when it does so, any transfer of the restricted interests will be void, no dividends may be paid on such interests, and no rights attached to such interests may be exercised (and it is an offence for the person to try to do any such thing).

What information will go on the PSC register?

If a PSC is an individual, the following information must be disclosed on the PSC register:

• his name;
• his service address;
• his usual country or state of residence;
• his nationality;
• his date of birth;
• his usual residential address;
• the date on which he became a PSC in relation to the company; and
• the nature of his control over the company.

Companies must update this information if they know or might reasonably be expected to have known that something has changed.

The PSC register should also include details of any relevant legal entity. The intention is that an interested party could then look at disclosures that it has made under its own disclosure regime to identify any ultimate PSC.

The PSC register can never be blank. In it, each company should say:

• whether it has reason to believe that there are PSCs or relevant legal entities but it has not been able to identify them or confirm their details;
• whether it knows or has reasonable cause to believe that there are no PSCs or relevant legal entities;
• whether it has not yet taken all reasonable steps to determine whether there are any PSCs or relevant legal entities;
• whether it has served a statutory notice that has not been obeyed (or there was late compliance); and/or
• whether it has issued or withdrawn a restrictions notice.

The company must make its PSC register available at no cost to anyone on request and provide a copy on request at a cost of £12. It may apply to a court for an order to absolve it from having to comply with this if it believes that the application is not for a proper purpose. The public register at Companies House, as we have said, will be open to searches by anyone and everyone free of charge.

Carve-outs for the weak and mighty

The usual residential address of a “person of significant control” will not be available publicly, either on the relevant company’s own register or on the register at Companies House, although certain public bodies and (unless a PSC makes a specific application) credit reference agencies will be allowed to see it. Each PSC’s date of birth will be publicly available on a company’s own PSC register, but not on the register at Companies House (unless the company elects to hold its own PSC register there). The PSC regulations will also permit PSCs to seek further protection for their personal information from public disclosure, as long as they can prove that there is a serious risk of harm. This protection regime is based on Britain's existing protection regime for directors.

What’s next?

Companies and LLPs, then, have to set up the necessary internal systems to deal with the new regime and should begin taking reasonable steps to identify PSCs and relevant legal entities and preparing their PSC registers for 'lift-off' on 6 April 2016, when the majority of the PSC regulations and LLP regulations are to take effect. Similarly, persons of significant control who wish to limit the information relating to them that will be publicly available on their companies' PSC registers should also begin preparing their applications.

Further amendments to the PSC regime are likely in order to bring it fully into line with the requirements of the European Union's Fourth Money Laundering Directive. However, they will probably not appear until next year.

* Iain Wright is a partner at the global law firm of Morgan Lewis. He is available at iwright@morganlewis.com. Ann-Marie Davies (pictured) is an associate.