March 30, 2016
With less than a week to go before the new UK regime on "people with significant control" comes into effect, are you aware as to how this will affect you whether you are an investor with a relevant stake in an in-scope entity or if you are or have within your corporate group an in-scope entity?
From 6 April 2016, most UK-incorporated companies and UK limited liability partnerships (LLPs) will be required to create and maintain a register of "people with significant control" over them (a PSC Register).
The purpose of the PSC Register is to facilitate greater corporate transparency – a company or LLP’s PSC Register should identify the persons who are its ultimate beneficial owners and controllers (whether PSCs or RRLEs discussed in sections III and IV below). The PSC information will need to be filed at Companies House from 30 June 2016 and will be available to the public.
(a) In scope entities
The PSC regime applies to the following UK incorporated or registered entities: (i) companies limited by shares; (ii) companies limited by guarantee; (iii) LLPs; (iv) unlimited companies; and (v) societas europaea (SEs).
(b) Outside scope or exempt entities
The requirement to maintain a PSC Register does not currently apply to other UK entities, such as limited partnerships or charitable incorporated organisations.
UK companies with shares listed on certain UK and other markets (including the London Stock Exchange main market, AIM, ISDX Growth Market, regulated markets in an EEA state and certain specified markets in Switzerland, the US, Japan and Israel) will be exempt as they are already required to make major shareholder information public.
A PSC is an individual or "special entity" who or which satisfies any of the following conditions:
1. has direct or indirect ownership of more than 25% of a company’s shares;
2. has direct or indirect control of more than 25% of a company’s voting rights;
3. has direct or indirect rights to appoint or remove a majority of the board of company directors or equivalent management body or (in the case of a SE) either the management or supervisory organ;
4. exercises or has the right to exercise significant influence or control over a company; or
5. exercises or has the right to exercise significant influence or control over activities of a trust or firm which itself meets one or more of the first four conditions.
Equivalent criteria is proposed for LLPs.
(a) Indirect interests
A person will be deemed to hold a share or a right "indirectly" if it has a majority stake in a legal entity that holds the shares or rights itself or through a chain of companies each of which has a majority stake in the entity below it (until you get to the entity holding the shares or rights in the UK company).
A shareholder has a "majority stake" if it has more than 50% of the shares or voting rights, the right to control the composition of the board or otherwise exercises, or has the right to exercise, a dominant influence over the relevant company’s affairs.
(b) Significant influence or control
The legislation does not provide an exhaustive statement of what constitutes "significant influence or control". Instead the draft regulations provide a number of principles and examples which are indicative of holding the right to exercise, or actually exercising, significant influence or control over a company, LLP, trust or firm.
An example of how the rules work in practice is found at the end of this note.
The legislation recognises that a company may be controlled by a legal entity (as opposed to an individual). A company must include any such legal entity in its PSC Register if that legal entity (a) would have been classed as a PSC had it been an individual and (b) is subject to its own disclosure requirements (i.e. it has to maintain its own PSC Register or it is exempt because its shares are listed on a specified market).
To avoid duplicative filings, only the first so-called "relevant legal entity" in a chain is registrable and these are treated as Registrable Relevant Legal Entities (RRLEs): PSCs and relevant legal entities higher up the chain are not registrable.
UK entities which are subject to the new regime must take reasonable steps to identify their PSCs and RRLEs, including by sending notices to any person they have reasonable cause to believe should be recorded on the PSC Register or knows the identity of someone who should be on the PSC Register. If an in-scope entity fails to take reasonable steps to identify its PSCs, both it and any officer in default will have committed a criminal offence, punishable by an unlimited fine and up to two years’ imprisonment.
If a registrable person or legal entity fails to respond to these enquiries, a company can disenfranchise and impose restrictions on any shares held by them. In addition, a PSC or RRLE who fails to comply with the notice, who gives false information (in a material particular) or recklessly makes a statement that is false (in a material particular) commits an offence.
If a company is in the process of taking reasonable steps to identify its PSCs or RRLEs, this fact should be recorded in the PSC Register. If a registrable person or legal entity fails to respond within one month of being sent an enquiry notice, this fact should be entered on the PSC Register. There is specific wording in government issued guidance (see section VIII below) on the form of words to use in this regard.
For individuals on the PSC Register certain personal information will need to be disclosed: name; service address; nationality; date of birth; usual residential address; date on which the individual became a registrable person with regard to the company in questions; and nature of his or her control over that company (using three broad bands of shareholding: 25-50%, 50.1–74.9% and 75%+).
PSCs’ residential address (unless it is being provided as a service address) and date of birth will not be available on the central public register. A PSC at serious risk of harm may also apply to have their information protected from disclosure on the Companies House and company PSC Registers.
A private limited company may elect to keep PSC information on the Companies House register rather than maintaining its own PSC Register.
The company has an ongoing duty to keep the PSC Register up-to-date and all changes to relevant information must be amended as soon as reasonably practicable.
The companies and LLPs subject to the new requirements will be required to maintain the PSC Register from 6 April 2016 and from 30 June 2016 these entities will also have to provide the information to Companies House when they deliver their Confirmation Statement (which is the new form due to replace the current Annual Return). Companies incorporated after 30 June 2016 will need to provide initial PSC information with their incorporation application materials.
The legislation for PSC Registers is not straightforward and will impose an administrative burden on many companies and LLPs.
If you are an entity, you should be taking active steps NOW to establish who should be entered on your PSC Register and if necessary, sending out notifications to relevant parties to confirm the identify of PSCs or RRLEs. Breach of this obligation is an offence.
If you are a PSC or RRLE and know this (or ought reasonably to know) this to be the case, if required particulars about you are not in the PSC Register, you will be committing an offence if you fail to provide the in-scope entity with relevant particulars.
The UK government has published useful non-statutory guidance on the application of the regime in practice for both PSCs and in-scope entities. Draft statutory guidance on the meaning of people with significant control are also available. These can be found at links below. 
Who should be listed on the PSC Register?
Company A (UK private limited company)
· Company B ( RLE)
Company B (UK private limited company)
· Company C(RLE)
· Person 2 (PSC)
Company C (UK private limited company)
· Person 4 (PSC, holding shares indirectly through Company D which, as an overseas company, is not an RLE)
Company D (overseas company)
· No PSC requirement for overseas company
 Part 21A of the Companies Act 2006 (inserted by the Small Business, Enterprise and Employment Act 2015). See also The Register of People with Significant Control Regulations 2016 and The Limited Liability Partnerships (Register of People with Significant Control) Regulations 2016.
If you require any further information or guidance on the new regime, please contact the authors of this note – Selina Sagayam (firstname.lastname@example.org) or Anne MacPherson (email@example.com), the Gibson Dunn lawyer with whom you normally work, or the following partners in the firm’s London office. We would be pleased to assist you.
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