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Requirement to register: meet PSC and SIOC

14 March 16

Corporate briefing: details are now available of how the new requirement to keep a register of persons with significant influence or control of a company or LLP is intended to operate

by Emma Arcari

There are now new deadlines, regulations and Government guidance in relation to the forthcoming disclosure requirements for companies and LLPs as to what constitutes a “person with significant influence or control” (PSC). 

Requirement to register

The Small Business, Enterprise and Employment Act 2015 requires PSCs to be included on a private register and a public register (accessible at Companies House). Draft regulations before Parliament are expected to be approved to come into force in April.

The draft Register of People with Significant Control Regulations 2016, and draft Limited Liability Partnerships (Register of People with Significant Control) Regulations 2016, will require UK companies (except those with Stock Exchange listing) and LLPs to maintain, and make available for inspection, a PSC register from 6 April 2016.

For public registration, companies and LLPs will be required to send the PSC information to Companies House with their confirmation statement (this replaces the annual return), or on incorporation, from 30 June onwards. Companies House will make the PSC information available to the public, with the intention of having a full register by mid-2017.

Who qualifies as a PSC?

The PSC register will be required to provide details of individuals and certain relevant registrable legal entities. A legal entity is relevant if it meets the conditions detailed in the next column, and holds its own PSC register (or is subject to the FCA’s Disclosure and Transparency Rules, chapter 5, or has its voting share admitted to trading on certain regulated markets in the UK, EEA or certain other areas); and is registrable if it is the first relevant legal entity in the company’s chain of ownership.

There are five conditions which dictate when a person is deemed to have significant influence or control (SIOC) over a company:

1. Owning (directly/indirectly) more than 25% of the company’s shares.

2. Holding (directly/indirectly) more than 25% of the company’s voting rights.

3. Holding (directly/indirectly) the right to appoint/remove a majority of the board.

4. Exercising, or having the right to exercise, SIOC over the company.

5. If the trustees of a trust or members of a firm that is not a legal person (in their capacity as such) meet any of conditions 1-4 in relation to the company, or would do so if they were individuals and the person has the right to exercise or exercises SIOC over the activities of that trust or firm.

There are similar conditions for LLPs. Condition 1 refers to the right to share (directly/indirectly) in more than 25% of any surplus assets of the LLP on a winding up (in the absence of express provision, each member is treated as holding the right to an equal share); condition 2 to holding (directly/indirectly) more than 25% of the rights to vote on those matters to be decided by members’ vote within the LLP; condition 3 to holding (directly/indirectly) the right to appoint/remove the majority of persons entitled to take part in the management of the LLP – including persons who hold a majority of the voting rights at meetings of its management body. Conditions 4 and 5 almost mirror the equivalent company conditions.

Condition 4 and the SIOC test

Guidance has finally been published (still in draft at the time of writing) on interpretation of the term SIOC. It includes information as to what can constitute a “right to” and what constitutes “actually exercising” SIOC. Examples for a company include:

  • absolute decision rights or veto rights over decisions related to the running of company business (e.g. changing a business plan, additional borrowing, establishing or adjusting incentive schemes);
  • absolute veto rights over the appointment of the majority of directors;
  • the cumulative effect of different relationships resulting in an individual being in a SIOC position (e.g. where a director owns assets that are key to running the business and uses this to influence company decisions);
  • involvement in the day-to-day management/direction of the company (e.g. a non-member/non-director regularly consulted in relation to board decisions, and able to influence those decisions);
  • a person’s recommendations usually being followed by shareholders (e.g. successful influence by a founder/former majority shareholder on voting).

Although non-exhaustive, the guidance does provide details of factors which on their own would not usually count as SIOC, for example where certain rights exist to protect minority interests. It further provides some comfort for customers or lenders working under a third party commercial or financial agreement, and professional advisers such as solicitors and accountants who can potentially fall into one of the so-called “safe harbours” or “excepted roles”. 

Space does not permit fuller consideration, but given the timescales we strongly recommend reading the draft regulations and guidance in order to advise clients how to operate with the new disclosure requirements. Failure to comply could lead to a criminal conviction on the part of the company and its officers, but failure to provide accurate information (or to respond to a request for information) in relation to the PSC register is also an offence. 

Emma Arcari, associate, CCW Business Lawyers Ltd

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