Private companies have traditionally been the weak link in corporate transparency but as of 6th April, 2016, this is all about to change. Publicly listed companies are subject to a much more stringent disclosure regime and for many companies, even larger ones, the lack of disclosure around who owns or controls a private company has been one significant reason to operate through this vehicle. A private company has not, up to now, had to look beyond who its registered shareholders are, allowing private trust and nominee arrangements to flourish. This has meant some companies may not even be aware of who actually owns or controls them, let alone anyone outside the company knowing.
What is changing?
The Government has stated that in order to tackle tax evasion, money laundering and terrorist financing as well as to increase trust in UK corporates more generally, it will require UK companies, Societates Europaeae and Limited Liability Partnerships (LLPs) to become more transparent. It will do this by requiring companies to keep a register of individuals or legal entities that have control over them (a PSC register). The only entities to which the new regime will not apply are UK listed companies (those subject to DTR 5 of the Financial Conduct Authority’s Disclosure & Transparency rules). Broadly this means companies listed on the London Stock Exchange and AIM, and UK companies with voting shares admitted to trading on a regulated market in another EEA state or on specified markets in Switzerland, USA, Japan or Israel. All other UK incorporated companies limited by shares or guarantee, including dormant companies and community interest companies are within scope, as well as UK Societas Europaea and UK LLPs. The regime is therefore all-encompassing in its scope.
Overseas entities operating in the UK, whether through a branch or otherwise, are not subject to the new regime.
When is it changing?
All UK incorporated entities within scope will need to keep a PSC register from 6th April 2016. As one of the main stated aims of the PSC regime is to increase transparency, from 30th June 2016, they will also need to file their PSC information at Companies House when making their annual confirmation statement (which replaces the annual return). The information at both Companies House and on a company’s individual register will be publicly available. Although residential addresses will remain private and will not be publicly disclosed, for the rest of the information, companies or affected individuals will have to prove that there are “exceptional circumstances”, i.e a serious risk of violence or intimidation, in order for it to be suppressed.
Non-compliance with the PSC register requirements is a criminal offence.
What will need to be registered?
The details of any individual or legal entity that owns or controls (directly or indirectly) more than 25% of a company (or LLP) will need to be registered. Who is a PSC and a registrable relevant legal entity and what details need to be registered for each, are set out in the legislation and there is also Government guidance on the meaning of significant influence or control.
The PSC regime requires companies to take five steps:
Identify PSCs;
Obtain and confirm this information;
Record the details in the PSC register;
Provide this information to Companies House;
Monitor and update this information.
A PSC register can never be blank. Even if a company has no interests to register, for example it has 5 individual shareholders each holding 20% of its shares, it must still maintain a register and include prescribed wording in it to reflect that it has no individuals with registrable interests.
Sounds confusing – what about the Government’s stated aim of reducing red tape for SME businesses?
In many ways this new regime does fly in the face of reducing red tape for SMEs. However the difficulty a company has in obtaining the information to include in the PSC register, completing and then maintaining it, will very much depend on how complex a company’s structure is. The Government has produced comprehensive guidance that is user friendly and designed for directors, shareholders, company secretaries and designated members (LLPs). However it is still fairly weighty for those unused to wading through guidance and applying it to one’s own company without the help of professional advisers.
What can we do to help?
We’ve tried to take the stress out of this looming change for you by producing a comprehensive package of new template notices, documents and guidance to assist you in getting your PSC Register up and running and making sure you comply with the many statutory requirements of the new regime. Our package includes templates to cover all the main aspects of the regime. These are now ready to download here.
You’ll need to act quickly however, the obligation is to have your register in place by 6th April 2016 and as the information in it needs to be confirmed, notices need to start being sent out to PSCs now.