The Small Business, Enterprise And Employment Act 2015: Persons With Significant Control

The Small Business, Enterprise and Employment Act 2015, which received Royal Assent on 26^th March 2015, is designed to reduce barriers which can hamper the ability for small businesses to innovate, grow and compete. The Act imposes changes in areas relating to companies and insolvency, with the aim of continuing to build and reinforce the view that globally, the UK is a fair and trusted place to do business.

One of the key changes being implemented is the introduction of a new statutory register: Persons with Significant Control. Due to come into force by 6^th April 2016 for companies, initial government guidelines lacked clarity. New draft guidance published 27^th January 2016 has attempted to address that.

The Person with Significant Control Register (PSC): What is it?

Companies, LLPs and Societas Europaea (SEs) will now be required to specify the people who control their company by maintaining a register of people with significant control over the company (“PSC Register”) and filing this information with Companies House. If after consideration of the regulations, you have identified that you have no PSCs, you must still file a statement to this effect. Where a company is controlled or owned by a relevant legal entity (“RLE”), not an individual, the legal entity must be disclosed on the PSC register where it is relevant to do so.

As a company, how will we identify a PSC?

There are five conditions for identifying any PSC:

1. Direct or Indirect ownership of more than 25% of a company’s shares.

A review of the company’s register of members should provide this information, although quite how indirect ownership and voting is to be established remains unclear.

2. Direct or indirect holding of more than 25% of a company’s voting rights.

Voting rights are usually detailed within the Articles of Association (the “Articles”) and this document alongside the register of members should be taken into account when identifying your PSC. Identification is made easier where your company has only one class of share.

3. Direct or indirect right to appoint or remove a majority of the board of company directors.

This is usually found in the Articles, an Investment Agreement or a Shareholders Agreement.

4. Actually exercises or has the right to exercise significant influence or control over a company.

Consideration should be given to anyone else who does not meet one or more of conditions 1 – 3 but has significant control over the way your company is run, regardless of any formal role or shareholding. An important point is that the right to exercise significant influence or control may result in that person being a PSC whether or not they actually choose to exercise that right. Rights and exercise are discussed further below.

5. Holding the right to exercise, or actually exercising significant influence or control over the activities of a trust or firm which is not a legal entity, but would itself satisfy any of the first four conditions if it were an individual.

You should consider whether an individual has such indirect control through an unincorporated body with control being determined by the first four conditions.

If any one or more of the above five conditions is met then there is a PSC and Companies House should be notified. The final two conditions may or may not be applicable, depending on the circumstances. Additionally, if a PSC has met one of the initial three conditions, a further note must be made with the registrar if they also hold significate influence or control detailed in the fourth condition.

Significant Influence or Control

It is important to highlight “significant influence” and “control” are alternatives. The following examples provided by Institute of Chartered Secretaries and Administrators (ISCA) may help clarify where a person has a right of influence or control; though these are by no means exhaustive:

A person may have control where they have absolute decision rights or veto rights over decisions related to the running of the business of the company, for example:

1. Adopting or amending the company’s business plan
2. Changing the nature of the company’s business
3. Making any additional borrowing from lenders
4. Establishing or amending any profit-sharing, share option, bonus or other incentive scheme of any nature for directors or employees.

A person can be seen to be exercising significant influence or control in the following way(s):

1. A director who also owns important assets or has key relationships that are important to the running of the business (e.g. IP rights), and uses this additional power to influence the outcome of decisions related to the running of the business of the company.
2. Involvement in the day to day management of the company, but not necessarily a member of the board of directors, who regularly or consistently directs or influences a significant section of the board, or is regularly consulted on board decisions and whose views influence decisions made by the board.

Where a person can direct the activities of a company, this would be indicative of “control”. Where a person can ensure that a company adopts their desired conclusion, this is indicative of “significant influence.”

What happens if our PSC is another company?

Should this be the case, you must look at the ownership of that legal entity to identify any PSC or RLE of that company. If the company is an RLE in its own right (i.e. it is governed by UK law) and it itself has to disclose its PSC, then you do not have to do anything further. However, if the company is an overseas company for example, then further investigation will be required. You must look at its ownership and if the majority stakeholder is an individual, then you have found your PSC, if it is a company, then you will have to follow the chain until you find (1) an individual; (2) another RLE; or (3) you identify that no one person has a majority.

Identifying who is not a PSC

Draft guidance has produced a list of attributes referred to as “Excepted Roles”, which would not be considered to meet one of the five conditions:

1. Where the person provides advice or direction in a professional capacity, for example:

• A lawyer
• An accountant
• A management consultant, including a company mentor
• A financial advisor.
• Investment managers
• Tax advisors

2. Where the person exercises a function under an enactment, for example:

• A regulator
• A liquidator or receiver appointed under the Insolvency Act 1986.

3. A person who makes recommendations to shareholders on a one-off issue, which is subject to a vote.
4. Where the person is an employee acting in the course of their employment, including an employee or director of a third party, which is treated as a PSC.
5. Rights held by all or a group of employees for the purpose of representing the employees’ interests in an employee-owned company.

Filing requirements

Once you have identified your PSC, the filing requirements for registration are fairly straightforward and are noted below:

• Name
• DOB
• Nationality
• Part of the UK where they usually reside
• Service address
• Usual residential address
• Date the person become a PSC (for current companies this will be 6^th April 2016 unless deadlines change)
• Which of the five conditions the person meets. This can be one of 1-3 alone or 1-3 as well as 4.
• Any existence of restrictions on disclosure.
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More detailed guidance and summary can be found here and BIS has indicated that additional guidance of a non-statutory nature is imminent. The information discussed above should not be taken as legal advice. If you have any questions, however, please do not hesitate to contact rachel.miele@mbmcommerical.co.uk