July 17, 2014
On June 25, 2014, the UK Government published the Small Business, Enterprise and Employment Bill which, among other things, proposes that all UK companies (other than publicly traded companies reporting under the Disclosure and Transparency Rules (DTR5)) be required to maintain a register of people who have significant control over the company. The Bill is part of the UK Government’s initiative to implement the G8 Action Plan to prevent the misuse of companies and legal arrangements agreed at the Lough Erne G8 Summit in June 2013, which we discussed in our client alert entitled “Through the Looking Glass: The Disclosure of Ultimate Ownership and the G8 Action Plan” (June 20, 2013). In broad terms, the G8 Action Plan is designed to ensure the integrity of beneficial ownership and basic company information and the timely access to that information by law enforcement and tax authorities.
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Creation of the PSC Register and Key Amendments to the UK Companies Act 2006
The Bill includes provisions intended to ensure that the UK continues to be recognised globally as a trusted and fair place to do business and to satisfy the UK’s G8 commitments to introduce new rules requiring companies to obtain, and hold, information on who owns and controls them, with the aim of increasing trust and encouraging investment and growth in the UK. The Bill proposes certain changes to the UK Companies Act 2006.
Requirement to keep a register of persons exercising ‘significant control’
- UK companies (other than the public companies which already report under the Disclosure and Transparency Rules (DTR5)) will be required to create a register (a “PSC Register”) which will contain information regarding individuals and legal entities with significant control over a company.
- Generally, an individual will be deemed to have significant control over a company (a “registrable person”) if that individual:
- directly or indirectly owns or controls more than 25% of a company’s shares or voting rights;
- in the case of a company which does not have share capital, has a right to share in more than 25% of the company’s capital or profits;
- directly or indirectly has the right to appoint a majority of the board of directors of a company or to remove a majority of the board; or
- otherwise exercises significant influence or control over a company.
- A legal entity will be deemed to have significant control over a company (a “relevant entity”) if that legal entity:
- would satisfy one of the criteria for having significant control applicable to individuals set out above; and
- is subject to its own disclosure requirements (i.e., is itself required to maintain a PSC Register, is a DTR5 issuer or meets certain requirements to be specified in future regulations).
- Companies have a duty to take reasonable steps to identify registrable persons and relevant legal entities and to annually verify the accuracy of such records.
- The PSC Register is to be held in a central registry maintained by Companies House (which currently holds other relevant information on UK companies, such as registers of directors and annual reports and accounts), where it will be accessible to law enforcement agencies and tax authorities (and for public inspection more widely, provided that the inspection is for a “proper purpose”).
Requirement on individuals
- Although the primary focus of the Bill is to require companies to identify individuals and legal entities with significant control, certain individuals and legal entities will have a proactive obligation to provide disclosure to UK companies over which they have significant control.
- This obligation arises when an individual or a legal entity knows (or ought reasonably to know) that it is a registrable person or relevant legal entity; its particulars are not already registered; it has not received a notice from the company concerned requesting confirmation of whether or not it is a registrable person or relevant legal entity; and the relevant circumstances have continued for at least 28 days.
- Directors of companies that fail to discharge the new obligations could face criminal penalties with sentencing options including imprisonment for up to two years or a fine (or both).
- In addition, if a registrable person or a relevant legal entity fails to comply with its disclosure obligations, the company may restrict the transfer of the shares held by that person, the voting of such shares or the issue of additional shares to which that person may be entitled.
- All directors will be required to be natural persons (subject to certain exceptions which are not specified in the Bill). Existing companies will have 12 months to comply with this requirement. Currently, a company may have corporate directors provided that at least one director is a natural person.
- Bearer shares will be abolished. Existing holders of bearer shares will be required to surrender their bearer shares to the company in exchange for registered shares within nine months.
- Certain aspects of company administration will be streamlined; for example, the requirement to prepare and deliver an annual return will include an option simply to confirm ‘no change’ to the previously filed information.
- Other provisions in the Bill seek to strengthen the director disqualification regime (including providing that directors convicted abroad of an offence related to the running of a company be disqualified in the UK).
If adopted, the Bill will introduce measures to formally require UK companies to keep a PSC Register which will increase the administrative burden on UK companies. In addition, owners and controllers of UK companies and those that advise them will need to notify UK companies over which they have significant control of transfers of indirect interests and of voting rights, when previously there has been no obligation to do so. This requirement may be particularly burdensome for persons deemed to have significant control over a large number of companies. There will be some offsetting saving in the time taken to administer UK companies arising from the simplification of the annual return regime.
It remains to be seen whether controllers that have legitimate reasons for seeking to stay out of the public eye will migrate holding company structures to jurisdictions that do not have equivalent requirements and, if they do, whether the UK and other G8 countries enact further laws to seek to negate the advantage of doing so.
It is worth noting that the Bill only requires companies, not limited liability partnerships, to keep a PSC Register.
 See http://www.publications.parliament.uk/pa/bills/cbill/2014-2015/0011/15011.pdf.
 See https://www.gibsondunn.com/through-the-looking-glass-the-disclosure-of-ultimate-ownership-and-the-g8-action-plan/.
We will continue to monitor these and other related developments and keep you updated as both regulation and market practice unfolds. Gibson Dunn’s lawyers are available to assist with any questions you may have regarding these developments. Please contact the Gibson Dunn lawyer with whom you usually work, or any of the authors of this alert.
Authors of this alert:
James Barabas (+44 20 7071 4253, firstname.lastname@example.org)
Wayne McArdle (+44 20 7071 4237, email@example.com)
Edward A. Tran (+44 20 7071 4228, firstname.lastname@example.org)
Other key London contacts:
Jonathan Earle (+44 20 7071 4211, email@example.com)
Nigel Stacey (+44 20 7071 4201, firstname.lastname@example.org)
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