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July 27, 2016
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Persons of Significant Control - Identifying and Reporting

Changes have come into effect from 6 April 2016 regarding the reporting obligations of Persons of Significant Control (PSC). All UK companies, Limited Liability Partnerships and SE’s (with some exceptions) will be required to keep a register of PSC and for those in control, there will be reporting requirements.

Conditions

There are 5 conditions that will determine whether a person has significant control over a business. These are detailed below:

1. An individual who holds more than 25% of shares in the company.

This first condition is fairly straightforward – if a person owns more than a quarter of the shares in a business, they would be deemed a PSC. Details of this would be found on the company’s register of members.

2. An individual who holds more than 25% of voting rights in the company.

This condition is similar to the first as often voting rights come with share ownership. As different shares can carry different voting rights, the business’s register of members and articles of association would need to be reviewed in detail.

3. An individual who holds the right to appoint or remove the majority of the board of directors of the company.

For example, if there is 1 director and somebody has the right to appoint them, this condition would be met and they would be a PSC for reporting purposes. The company’s constitution and articles of association may contain relevant information

4. An individual who has the right to exercise, or actually exercises, significant influence or control over the company.

This condition should only be considered if conditions 1 to 3 are not met. Note that the condition mentions the ‘right to exercise’, meaning that a person may not exercise significant influence or control of a business directly but may have the right that, if exercised, would give rise to significant influence or control. This condition has a broader interpretation (comparatively, conditions 1 to 3 are more objective and measurable) and so further consideration may be required to ascertain whether  this applies

5. Where a trust or firm would satisfy one of the first four conditions if it were an individual. Any individual holding the right to exercise, or actually exercising, significant influence or control over the activities of that trust or firm.

The identity of the people who ultimately have control of a business may not always be clear when the shares are owned by firms/trusts. It is important therefore that where applicable, any layers of ownership are investigated so that the persons of significant control can be reported.

Recording and Reporting

Should 1 or more people meet the conditions described, a company is required to record details of these individuals on their PSC register. Details of the information that is required to be entered on the register may be found here.

The company is also required to provide details of PSCs to Companies House as a part of the Confirmation Statement (this process will replace the Annual Return). The register will be publicly available, however it should be noted that details of residential address (which is required for the company’s register) must not be included.

It is the responsibility of the company to keep details of PSCs up to date and to provide updated information to Companies House on the Confirmation Statement. Failure to provide accurate information may result in a fine or prison sentence.

There may be situations where a company has identified a PSC or someone with knowledge of a PSC but that person has refused to provide the necessary information. In each case, provided that the company has taken reasonable steps to attempt to obtain this information, there should be no further consequences for the company. The person refusing to provide the information however will be committing a criminal offence and it may be necessary to place restrictions on the shares or voting rights of the person or entity withholding information.

If you are uncertain of whether these conditions will apply to you or your company, please contact us for a no obligations chat.

 

 

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