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People with Significant Control: Confusion or clarity?

Debbie Farman is our Director of Legal Practice for Jordans Corporate Law.  Here she takes a closer look at the confusion surrounding the specific statements permitted when filing your initial Register of People with Significant Control. I am pleased to welcome her to the Jordans in Scotland blog.

Following the introduction of the requirement to identify the initial “people with significant control” (“PSC”) on incorporation of a UK company, which came into force on 30 June 2016, it appears the legal fraternity is more than a little confused over the limited choice of PSC statements that Companies House will accept on incorporation. On its Form IN01, the Registrar offers two choices: either you know there is a PSC or, you know there isn’t! 1

Why is this an issue?

Because, at first glance, this appears to be at odds with how the legislator has approached this under the new PSC Regulations 2. Under the PSC Regulations a company and its officers are provided with a number of optional statements to enter into its PSC register. This affords a company with a little more time and flexibility to gather the information on its PSCs and to make sure that information is correct and confirmed 3. The legislative statements range from: there isn’t one; we think there’s one so we are making enquiries; we know there’s one and we are waiting for confirmation; to: there’s one but they won’t give us their details; we’ve served notice on them to demand their details, etc. (Note: author’s interpretation). 4

Why is there a difference?

Cynics may say it is because Companies House forms and systems only had two boxes. I suggest a more measured explanation is that the Registrar believes that when forming a company the owners should be obvious, having regard to the 5 criteria for identifying a PSC 5. At least so far as the Registrar is concerned.

Of course, commerce being as it is, it is never that straightforward. For example, companies are formed in readiness for transactions/acquisitions. If there is to be a group structure, a wholly owned subsidiary that has a registrable RLE as its parent is an easy submission – there is one - but the owners of 'Topco' (Top company in a group) may not be obvious at first glance, but the company needs to be formed in order for the transaction to take place. In this case, neither statement – because there is no statement that says “there may be – we will confirm after incorporation”. If you tick “there isn’t one” – this is not strictly (nor legally) correct. If you tick there is one – you need to provide their details, and you probably don’t have them. Dilemma! Once formed, this can all be rectified by using the more flexible statements under the PSC Regulations, but where do you go on incorporation?

We can only assume that this two statement approach was deliberate, in that the Registrar did not want a half-way house on incorporation. However, the above example explains where in practice this is not the best approach in all of the circumstances. In practice, Option (b) appears to be the default, with the statement being rectified immediately after incorporation, once the PSC is clearly identifiable.

On the whole people want to abide by the rules and apply the law. It is frustrating if systems and forms will not allow this. It is early days for this legislation and it may transpire that the forms will change and this element may be relaxed and more in line with the legislation. Alternatively, the legislation may change to provide that on incorporation a company may make differing statements in exceptional circumstances (although I doubt this).

It would be helpful to the legal community, and beyond, if the legislature could clear up this confusion.

*Many thanks to Karina James-Wiltshire, who provided valuable contributions to this article.*

                   ________________________

1 Companies House provides two PSC options on incorporation. a) On incorporation, there will be someone who will count as a person with significant control (either a registrable person or registrable RLE) in relation to the company; or b) The company knows or has reason to believe that there will be no person with significant control, in relation to the company.

2 Regulations 10-13 of The Register of People with Significant Control Regulations 2016.

3 Information must be confirmed if the PSC is an individual. If the PSC is a registrable RLE, there is no requirement to confirm.

4 Statements can be found in the Register of People with Significant Control Regulations 2016. In addition, the Department for Business, Skills and Innovation released guidance on the official wording that should be entered in a company's PSC register when there is no PSC or the company is still making investigations, for example:

  1. “The company knows or has reasonable cause to believe that there is no registrable person or registrable relevant legal entity in relation to the company”; or
  2. “The company knows or has reasonable cause to believe that there is a registrable person in relation to the company but has not identified the registrable person”; or
  3. “The company has identified a registrable person in relation to the company but all of the required particulars of that person have not been confirmed”; or
  4. “The company has not yet completed taking reasonable steps to find out if there is anyone who is a registrable person or a registrable relevant legal entity in relation to the company”.

 

[1] Section 21A and Schedule 1A  of the Companies Act 2006 set out the criteria for identifying a PSC, being:

First Condition - The person holds, directly or indirectly, more than 25% of the shares
Second Condition - The person holds, directly or indirectly, 75% or more of the voting rights
Third Condition - The person holds the right, directly or indirectly, to appoint or remove a majority of the board of directors
Fourth Condition - The person has the right to exercise or actually exercises significant influence or control
Fifth Condition – The person has the right to exercise or actually exercises significant influence or control over the activities of a trust or firm that, under the law by which it is governed, is not a legal person; and the trustees of that trust or the members of that firm (in their capacity as such) hold, directly or indirectly, more than 25% of the shares

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