New Obligations for UK Companies and Limited Liability Partnerships

A key change requires the disclosure of information relating to the people who control companies. Some entities are exempt, including public companies with shares listed on certain stock exchanges, including the AIM or Main Market of the London Stock Exchange. These entities may however be required to disclose their ownership and control of other companies in their group.

This summary refers primarily to companies, but note that adapted versions of these requirements also apply to UK limited liability partnerships and Societates Europaeae.

Timing

The key dates are:

• From 6 April 2016, unless they are exempt, companies will need to create and maintain a register of people with significant control (PSC).
• From 30 June 2016, unless an exemption applies, persons and entities included on the PSC register will also need to be included:
  • in the new annual confirmation statement (which replaces the annual return); and
  • in the information sent to Companies House on incorporation of a new company.

Who are PSCs?

People with significant control include:

• for a company, individuals who, directly or indirectly, hold more than 25% by nominal value of the shares or voting rights, have the right to appoint or remove a majority of the directors (who hold a majority of votes at board level) or who otherwise have rights to or actually exercise significant influence or control over the company; and
• for a limited liability partnership, individuals who, directly or indirectly, have the right to share in more than 25 per cent of any surplus assets on a winding up, hold more than 25% of the voting rights, have the right to appoint or remove the majority of those involved in management (who control the majority of management voting rights) or who otherwise have rights to or actually exercise significant influence or control over the limited liability partnership.

The requirement includes individuals who exercise significant influence or control over a trust or partnership (which is not a legal entity) which meets any of the above requirements and rights and interests are aggregated for individuals who are party to arrangements to exercise their rights together.

A person is treated as holding shares or rights indirectly if they are held through a legal entity which holds shares in the company (or through a chain of legal entities) in which the individual holds a majority of the voting rights, can appoint or remove a majority of the directors or over which he or she exercises or has the right to exercise dominant influence and control.

Statutory Guidance from the Department of Business, Innovation & Skills on the meaning of "significant influence or control" is currently in draft form. The draft guidance includes the following:

• where a person can direct the activities of a company, trust or firm, this would be indicative of "control";
• where a person can ensure that a company, trust or firm generally adopts the activities he or she desires, this is indicative of "significant influence";
• in the context of a company, a person may hold a right to exercise significant influence or control as a result of a variety of circumstances including the provisions of a company’s constitution, the rights attached to the shares or securities which a person holds, a shareholders’ agreement, some other agreement or otherwise; and
• absolute veto rights over decisions relating to the running of a company's business (such as adopting or amending its business plan) may constitute a right to exercise significant influence or control. However, veto rights over fundamental matters to protect minority interests, such as over changes to a company's constitution will not, on their own, usually do so.

In this context, "absolute" in relation to a decision right or veto means that a person has the ability to make or veto a decision without reference to or collaboration with anyone else.

What are relevant legal entities?

Where a company (subsidiary) is owned or controlled by another legal entity (parent), such as another company, details of that entity should be included on the PSC register if it is a relevant legal entity, which will be the case if meets any of the conditions for an individual to become a PSC (for example, it holds more than 25% of the voting rights) and:

• it keeps its own PSC register or is subject to the public disclosure regime which applies to companies with shares listed on certain stock exchanges; and
• it is the first relevant legal entity (going upwards) in the group ownership chain.

There is then no requirement for subsidiary to enquire further into the ownership of the parent.

This means that listed companies (UK and certain overseas listed companies), unlisted UK companies and UK limited liability partnerships can be relevant legal entities and entered on the PSC register. However, unlisted overseas companies will not be relevant legal entities, their details will not be entered onto the PSC register and UK companies will need to look further up their ownership chain for information for the PSC register.

Some companies will have more than one PSC, others will have no PSCs but must still maintain the register.  

If a company does not have any PSCs, it must state this in its new register – the register is not allowed to be blank. The register must then state:

"The company knows or has reasonable cause to believe that there is no registrable person or registrable relevant legal entity in relation to the company"

On 6 April, 2016, when the requirement to create and maintain the register takes effect, unless a company knows the identity of any PSC and relevant legal entity (and for an individual has confirmed that information with them), it should enter the following holding statement in its PSC register:

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

Process

Companies (other than those which are exempt from the requirement) must take reasonable steps to determine whether an individual or legal entity needs to be included on its PSC register. It may be that these individuals and entities cannot be identified, but failure to take reasonable steps to identify them is a criminal offence (see below).

The process recommended by the Department for Business, Innovation & Skills is to:

• consider the documents and information already available. For example, for a company, the register of members and the rights set out in the articles of association may reveal individuals holding more than 25% of the shares or voting rights or with rights to appoint or remove a majority of the directors;
• for a PSC which is an individual, once identified, information about them needs to be confirmed before it can be put on the PSC register. A notice can be sent to them to confirm this information with a deadline of one month for a response. Information about relevant legal entities does not need to be confirmed but must be accurate;
• once information about any PSC or relevant legal entity is complete then it should be entered on the register (even if information about other PSCs is still outstanding); and
• if a company has reason to believe that there is a PSC or relevant legal entity in relation to the company but has not been able to confirm the position or identify that person or entity, it should consider sending notices to persons who may have that information (including PSCs, relevant legal entities and third parties such as lawyers, banks or family members). Such a notice must require a response within a month and failure to respond (without a valid reason) can be a criminal offence. If no response is forthcoming after a further warning notice has been served then it is possible to impose restrictions on the shares or rights the person concerned holds in the company.

A PSC or relevant legal entity may also contact a company to advise that its details need to be added to the PSC register. An individual PSC or relevant legal entity is also under an obligation to identify itself as a PSC or relevant legal entity. It must provide the company with the relevant details, if it knows, or ought reasonably to know that it is a PSC or relevant legal entity, it is not already on the register and it has not received a notice from the company within one month of becoming one. Failure to do so is a criminal offence.

The information to be entered on the PSC register for an individual PSC includes their name, date of birth, nationality, country or state (and in case of the UK, the part) in which they usually reside, service and residential address, date of becoming a PSC and which of the conditions to becoming a PSC the person satisfies (plus the band of percentage interest where relevant (the banding need only specify a range - over 25% up to and including 50%, over 50% and less than 75% and 75% or more)).

The information to be entered on the PSC register for a relevant legal entity includes its name, registered or principal office address, legal form and governing law, registration number and register, the date it becomes a relevant legal entity and which of the conditions to becoming a PSC it satisfies (plus the band of percentage interest, where relevant (using the bandings explained above)).

Information must then be updated when it changes – if a company is not yet able to enter the new information, its register should show the date when the old information became incorrect plus a statement of the investigation being undertaken in relation to the change. The company should then send notices to confirm the details of the relevant change if those details are not otherwise provided to it.

A company should check that the information on its PSC register is up-to-date at least annually so that it can be confirmed on its annual confirmation statement.

Public disclosure

From 30^th June 2016, information from the PSC register must be included when a company files its next annual confirmation statement and on incorporation of a new company.

A company must disclose a copy of its PSC register (excluding details of any residential address) to anyone who requests it unless it believes that the request was not for a proper purpose.

Criminal offences

Companies which are subject to the new requirement must comply with the relevant provisions or the company and every officer in default may be liable, on conviction, to a fine and/or two years imprisonment.

There is also an obligation on PSCs to provide the required information to the company or risk being convicted of a criminal offence. These are strict liability offences. There is no defence available to a company or PSC or any of their directors or other officers for an inadvertent breach of the obligations.

Detailed guidance on these requirements has been published by the Department for Business, Innovation & Skills and can be found here.

Draft statutory guidance on the meaning of "significant influence or control" over companies can be found here.

If you would like advice from Bird & Bird on the applicability of these requirements to your business, please do not hesitate to contact a member of our corporate team.