Coming in to force on April 6th 2016, the UK government now requires each company (no matter how small) to keep a register of the people that has significant control over the organisations activities (known as a PSC register). Non compliance can attract a penalty and it also a criminal offence.

This article aims to summarise this new requirement, providing an overview of:
– What is the PSC Register
– Why the PSC Register is being introduced,
– Who the PSC Register requirement applies to,
– What must an affected company do
– What is a person with significant control
– The timeline for adherence to the new legislation
– A solution to the PSC Register legislation

What is this new legislation?

The legislation put in place by government requires companies registered in the UK to file a Register of People with Significant Control (PSC Register) with Companies House.

The legislation comes in to force on the 6th April 2016 and from here on in, all companies must hold a PSC Register.

As per other registers that are filed with Companies House, the PSC Register will be available for inspection by the public.

Why is the PSC Register legislation being introduced?

In short a group of nations including the UK wanted to bring more transparency, trust and accountability and identify who actually ‘pulls the strings’ in companies. It is a problem that only really impacts a small proportion of business but for which a blanket solution was required in order to tackle the problem.

Our view therefore is that this is a big business piece of legislation that impacts even the smallest companies and one that is not well known or understood.

Full legislation guidance can be found HERE

Persons of Significant Control (PSC)

Who does the PSC Register legislation apply to?

The primary aim of the legislation, and the main reason it is being introduced, is to tackle the complex ownership structures of larger organisations. This focus hasn’t been replicated within the legislation itself, and the PSC Register legislation applies to practically all UK private companies.

While not an exhaustive list, a PSC Register will be required by:

– Private companies limited by shares
– Private companies limited by guarantee
– Limited liability partnerships (LLPs)
– Most public limited companies

The PSC Register is required by both existing companies (operating before April 6th 2016) and new companies formed from this date forward.

The PSC Register does not apply to:

– Sole traders
– Limited partnerships (LPs)
– Charitable Incorporated Organisations (CIOs)
– Companies that are subject to Chapter 5 of the FCA Disclosure and Transparency Rules
– Companies with voting shares admitted to trading on a regulated market in the UK
– Companies with voting shares admitted to trading in another European Economic Area state
– Companies with voting shares admitted to trading on certain specified markets in Switzerland, the USA, Japan and Israel
– Overseas entities operating but not registered as a company in the UK

What must an affected company do?

There are 6 steps to having a fully compliant PSC Register

1. Take steps to identify whether there are people with significant control over the company
2. Make contact with those individuals, or others who may know them, to confirm whether they meet the specific control conditions.
3. If they meet the conditions, confirm relevant information to include in the register.
4. Create the Register of People with Significant Control and input the details received from all PSCs. In some certain circumstances, other information may be required.
5. Confirm the information in the companies next Confirmation Statement (which replaces the annual return)
6. Keep all information on PSCs up to date, update when there is a new PSC, and remove where someone stops meeting the control conditions.

So, what is a Person with Significant Control?

As an overview, a person with significant control (a PSC) is someone who owns or controls a company. Someone who can determine an organisations direction and activities.

Specifically, a PSC is someone who meets at least 1 of the following 5 conditions:

They,
– Own more than 25% of the company’s shares
– Hold more than 25% of the company’s voting rights
– Have the power to appoint or remove the majority of the company’s board
– Have the right to, or actually, exercise significant influence or control over the company (there is detailed statutory guidance explaining the scope of “significant influence or control”)
– Have the right to, or actually, exercise significant influence or control over a trust or a firm that is not a legal entity which itself satisfies any of the first four conditions.

Different conditions, although based on the same principles, apply to LLPs.

For companies limited by guarantee, which generally do not have shares, the same rules apply although in a slightly amended form.

With only a few specific exceptions, a person with significant control (a PSC) is an individual. A PSC must be entered on to the register whether nominated directly or indirectly, but only once their details have been verified.

While legal entities, like companies, are not classed as PSCs they may be classed as relevant legal entities (RLEs) and would need to have their details recorded on the PSC Register. If a relevant legal entity would meet any of the above conditions if it was an individual, it should be registered.

And what is the timeline for adherence to the legislation?

The requirement to maintain a PSC Register and report details contained in it is being introduced as part of a wider range of changes:

6 April 2016
Every affected company must start to keep a PSC Register.

Existing companies must undertake reasonable efforts to identify and verify their PSCs, verifying PSC information and recording this on the register.

The register must be maintained when new people become PSCs, existing PSCs change their details, or existing PSCs cease to be a PSC.

30 June 2016
PSC information must be sent annually to Companies House under the Confirmation Statement. When the next return is due after this date, the PSC Register will need to be included.

New companies formed from this date must include a statement of initial significant control, detailing the people with significant control when the company is formed.

It seems a lot of work for the little guys who are busy trying to run and grow their business?

At Next Level Business, our view is that whilst we can see corporate transparency is sometimes an issue for larger companies and those with complex shareholding and ownership structures your ‘average’ small company in the UK has not suffered a transparency issue as they are often controlled directly by a single or small group of shareholders.

By the governments own estimate the cost to UK business will be £85.9m each year. With low awareness among small business and a traditional accounting model based on an annual cycle we predict a significant number of companies to be non-compliant and facing penalty or risk criminal offence.

So what is the solution?

As a digital service provider (both accounting and company secretarial) we would recommend creating and maintaining this new register digitally so that it is available upon request for inspection, easily updated when things change, and also available to submit annually to Companies House.

If you would like us to complete this for you, or you have any queries, please get in touch.