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Companies and LLP’s are advised to reflect on changes made to the PSC regime. Following legislative changes that came into force on 26th June 2017 directors and significantly other persons involved in the running of a company or trust organisation must keep certain information about themselves held on a central register known as the Register of People with Significant Control (“PSC”) and furthermore that information must also be provided to Companies House in a timely manner.
The Secretary of State has issued statutory guidance about the meaning of the term “significant influence or control” for the purposes of Schedule 1A to the Companies Act 2006 (“the Act”). This guidance is published and sets out 5 conditions which identify a person that enjoys significant control over a company or trust organisation.
If one or more of the specified conditions in Schedule 1A to the Act are satisfied then that person must be noted on the PSC Register.
The first three specified conditions require the holding of more than 25% of the shares or voting rights in the company, or the right to appoint or remove the majority of the board of directors.
The fourth and fifth specified conditions require a person to exercise, or have the right to exercise “significant influence or control” either over the company itself or over the activities of a trust or a firm which meets any of the other specified conditions in relation to the company.
If a person has significant control over a company by meeting one or more of the first three specified conditions it is unnecessary to make a further note in its PSC Register or note it within the Register if that person also has significant influence or control by virtue of the fourth condition.
The term “significant influence or control” occurs four times in Schedule 1A (excluding paragraph 24 which requires guidance to be issued on the term). This is shown below.
The first two occurrences are in the fourth and fifth specified conditions and take the following form:-
Significant influence or control
5. The fourth condition is that X has the right to exercise or actually exercises significant influence or control over company Y.
Trusts, partnerships etc
6. The fifth condition is that:-
(a) the trustees of a trust or the members of a firm that, under the law by which it is governed, is not a legal person meet any of the other specified conditions (in their capacity as such) in relation to company Y, or would do so if they were individuals; and
(b) X has the right to exercise, or actually exercises, significant influence or control over the activities of that trust or firm.
Significant influence or control – the terminology
It must be noted that “significant influence” and “control” are treated as alternatives.
Where a person can direct the activities of a company, trust or firm, this behaviour would be indicative of “control”.
Where a person can ensure that a company, trust or firm generally adopts the activities that they desire, this would be indicative of “significant influence”.
The “control” and “significant influence” do not have to be exercised by a person with a view to gaining economic benefit from the policies or activities of the company, trust or firm.
The right exercise significant influence or control may result in that person becoming a PSC in relation to the company regardless of whether or not they actually exercise that right. A typical example is the spouse of a director in a family business. Further examples of this are below.
A person has absolute decision rights over decisions relating to the running of the business of the company if for example they:-
• can adopt or amend the company’s business plan;
• can change the nature of the company’s business;
• can seek additional borrowing from lenders;
• have the ability to appoint or remove the CEO;
• can establish or amend any profit sharing bonus or other incentive scheme of any nature for directors or subordinate employees.
Naturally and necessarily there are also excluded persons which allow certain excepted roles and function in respect of companies which are not captured by the PSC regime. These are:-
• management consultants;
• investment managers;
• tax advisers or financial advisers.
This exception also extends to third party commercial arrangements such as:-
• a supplier;
• a customer;
• a lender.
Other excepted organisations include those that exercise a function under an enactment for example:-
• a Regulator;
• a Liquidator or Receiver.
The list of excepted roles means that acting in isolation, certain activities would not result in that person being considered to be exercising “significant influence” or “control” for the purposes of the fourth condition. Caution must be exercised in the functions of that person however which could result in them being considered to have significant influence or control and are therefore required to be recorded on the Register.
So what does this mean to the regular company?
For most businesses of a small to medium sized enterprise, the Register of People with Significant Control will be their directors and majority shareholders. Whilst there is no prescribed format for a PSC Register, there is an official wording on the status of a company’s PSCs which must be included on the PSC Register. Please contact our commercial team for further information.
A company must always have information about their PSCs on the Register and update their status periodically. The Register must never be empty.
It is significant that there are criminal sanctions for non-compliance and the People with Significant Control (amendment) Regulations 2017 have amongst other things extended the scope of the regime and tightened up the procedure and timescales for updating the PSC Register and crucially reporting those changes to Companies House.
Should you require any further information and assistance with your company compliance matters then please contact Ian Bowker in our Commercial Department or Oliver Nicholas in our Criminal and Regulatory Team on 01952 297979.
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