Charities having to register people with significant control

There will be charities which will have to comply with new requirements concerning the registration of people with significant control. To help these charities get to grips with the subject this article goes into considerable detail. At the same time, it seeks to help charities ascertain whether or not they will be affected by the new requirements in the first place. If they are, they need to prepare for registration.

The Small Business, Enterprise and Employment Act 2015 may appear from its title to have little relevance to charities but this is not the case. The SBEEA introduces new provisions into the Companies Act 2006 and affects all UK companies and LLPs (including dormant companies). This article touches on one of the key changes introduced by the SBEEA, the requirement to keep a register of people with significant control over a company (these people would constitute a PSC - personal service company) and how this impacts on charities.

(What constitutes an individual being a personal service company is explained in detail further down in the numbered points.)

As of 6 April 2016, all UK private limited companies must have in place a PSC register (in addition to the companies’ existing registers) and with effect from 30 June 2016, companies must make this register public by including it in their annual Confirmation Statement (which is replacing the Annual Return from 30 June 2016).

Although this requirement does not currently apply to Charitable Incorporated Organisations or, for example, co-operative and community benefit societies and charitable incorporations established by statute, there are at present no exemptions for charitable companies (including, controversially, academy trust companies). The latter therefore need to be up to speed with the new requirements, which are set out in part 21A and schedules 1A and 1B of the Companies Act 2006 and related regulations.

Note that companies which fail to comply with their legal duties could be committing a criminal offence and could be fined. Similarly, company officers who are in default could be committing a criminal offence and could be fined and/or imprisoned.

Identifying significant control and entities

So, companies must take all reasonable steps to identify any PSCs and any corporate bodies which are relevant legal entities (RLEs) with significant control. A relevant legal entity is a legal entity that would have been a PSC if it was an individual. As a general rule, it will be registrable (and therefore have to be entered on the PSC register) if it is the first RLE in the company’s ownership chain. Companies should keep accurate and up to date records of the steps they have taken to identify these individuals/entities.

An individual will be a PSC if they satisfy at least one of the "specified conditions" in relation to the company, which are set out in schedule 1A of the Companies Act 2006. These conditions must be considered in turn:

  1. Holding, directly or indirectly, more than 25% of the shares.
  2. Holding, directly or indirectly, more than 25% of the voting rights.
  3. Holding the right, directly or indirectly, to appoint or remove a majority of the board of directors (the charity trustees).
  4. Having the right to exercise, or actually exercising, significant influence or control over the company.
  5. Having 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, i.e. trusts, partnership etc.

The first condition affects even small companies with two or three shareholders. However, this condition will not be relevant to companies limited by guarantee without a share capital, where the company’s constitution does not allow the distribution of profits or capital to members, and will not therefore affect most charitable companies.

If it is not possible to work out who has sufficient voting rights or rights to appoint or remove directors (to qualify under the second and third conditions) from the company’s register of members and articles of association, or where a company suspects that there may be agreements between shareholders or indirect rights of which it does not have knowledge, or where the company does not have all the information it needs for the register, it must serve notice on the PSC or RLE seeking this information (the statutory guidance contains example notices).

The Department for Business Innovation & Skills (BIS) has produced detailed statutory guidance on what is meant by "significant influence or control" and a company should carefully consider this if there is a personal service company or relevant legal entity to whom this condition may apply.

In short, the BIS guidance states that “where a person can ensure that a company, trust or firm generally adopts the activities which they desire, this would be indicative of ‘significant influence’” and “where a person...can direct the activities of a company, trust or firm, this would be indicative of ‘control’”.

Detailed examples given

There are many detailed examples and exemptions given in the guidance, including exemptions for professional advisers acting in their professional capacity and persons acting in the course of their employment (including directors/charity trustees themselves).

For example, where an employee is acting in the course of his/her employment and as nominee for his/her employer (e.g. an appointee director), the individual does not by virtue of that post become a person exercising significant influence or control.

Individuals holding these roles will not generally be PSCs unless the role “differs in material respects or contains significantly different features from how the role or relationship is generally understood” or “forms one of several opportunities which that person has to exercise significant influence or control.” If it needs to, the company must serve notices seeking information.

The fifth condition would apply where a trust or firm (or other body without a legal personality) has ownership or control over a company that would lead it to be registered if it were a person. If there is such a trust or other body, then details of the persons directing that body should be entered in the register. Although the guidance is not completely clear, it is likely that this will include the trustees of the trust.

The company must also consider if there is any other person who should be registered. In this case, the definition of "significant influence or control" could cover, for example, a settlor or beneficiary in accordance with whose wishes the trustees tend to act.

Relevant entities and other persons

If a company is owned or controlled by a legal entity, such as another company, the personal service company register must also contain information about that legal entity (i.e. the relevant legal entity) to the extent that it is both “relevant and registrable”. As mentioned above, a RLE will be registrable if it is the first RLE in the company’s ownership chain. For example, the RLE of a wholly owned trading subsidiary of a UK charitable company would be the charitable parent company.

The PSC register must also be completed where a company is owned or controlled by some "other registrable person" such as, for example, a corporation sole (e.g. a diocesan bishop, or incumbent of a parish) and local or national governments and departments.

Information for the PSC register

Companies must take reasonable steps to obtain the information required for entry on the register. The personal service company register must include the following details about the personal service company:

  • Full name of the PSC.
  • Date of birth.
  • Nationality.
  • Country or state or part of the UK where the PSC usually lives.
  • Service address.
  • Usual residential address of the PSC.
  • Date the PSC became registrable (6 April 2016 for someone who was already a PSC of a company in existence prior to this date).
  • Which of the five conditions for being a PSC the individual meets, with quantification of the interest where relevant (if an individual meets conditions one to three, it is not necessary to identify whether they also meet condition four).
  • Any restrictions on disclosing the PSC’s information that are in place.

Although the usual residential address of the PSC will not be publicly available on the PSC register or at Companies House (unless provided as a service address) this must still be provided. Similarly, only the month and year of a PSC’s date of birth will be available at Companies House.

Similarly, where registrable RLEs are identified, the following details must be included:

  • Name of the legal entity.
  • Address of its registered or principal office.
  • The legal form of the entity and the law by which it is governed.
  • A register in which it appears (if applicable) and its registration number.
  • Date the RLE became registrable in relation to your company.
  • Which of the five conditions it meets, with quantification of its interest where relevant (if a RLE meets conditions one to three, it is not necessary to identify whether they it meet condition four).

Confirming information

Information relating to PSCs which are individuals (but not a RLE) must be confirmed with the PSC before it is entered on the register. The company can take a common sense view of this. For example, if the information was provided by the PSC or with its knowledge, it does not need to be confirmed. Otherwise, the company should ask the PSC to confirm that the information is accurate, before entering it on the register.

This information must be put on the register as soon as it is complete in relation to each PSC (even if the company is still in the process of taking reasonable steps to identify and confirm information about other PSCs).

If the company lacks sufficient information to complete the register, it must issue notices to those that it knows or suspects may have the information it needs. The company may also receive unsolicited information from PSCs as they are obliged by law to provide this. If the information requested is not provided within the relevant time, i.e. one month, enforcement action can be taken such as applying restrictions (including voting restrictions) to that person’s interest in the company.

Completing the PSC register

Details of PSCs/RLEs should be inserted as soon as the information is complete and confirmed. The register cannot be blank. If the company has not finished the identification process, it must record that fact using the official wording, which is contained in the BIS guidance. Similarly, other official statements, also contained in the BIS guidance, cover situations where the company is seeking information, has served notices, is taking enforcement action, or has completed the process and found no one whose details need to be registered.

Filing information at Companies House

Companies will need to file the information on their PSC register with Companies House as part of their Confirmation Statement, which replaces the Annual Return as from 30 June 2016. The information at Companies House will be publicly available, except for the residential address of an individual PSC and the day of the month in which they were born (although this can still be made available to certain bodies, such as credit reference agencies, and law enforcement agencies).

A company can serve notice on its PSCs and RLEs that it wishes to keep its PSC register at Companies House. If they do not object, it can file with the Registrar of Companies all the information in its PSC register, and cease to keep its own PSC register. In this case the full date of birth of PSCs will be publicly available. Further information about this process is available in the statutory guidance.

Updating the register and filings

Companies have a duty to keep their PSC register up to date. When there is a change in the information kept on the register, the date and nature of the change should be noted on the register as soon as possible, together with a new statement if applicable. If a company maintains its register at Companies House this should be updated promptly, in the same way as the Company’s own PSC register if it maintains this at its registered office.

When a personal service company or relevant legal entity ceases to be a PSC or RLE, the date of cessation should be inserted on the register, and the information then kept for ten years. Companies House will store indefinitely the information filed each year in the Confirmation Statement.

Public inspection

Any person or legal entity may make a request to have access to the PSC register free of charge or have a copy of it. Companies may charge up to £12 for providing a copy. The request should state their name and address and their purpose in seeking the information. If they are an organisation, they should include the name of the responsible individual. Companies must reply within five working days of receipt with the information and the date it was last updated, unless an application for a court order is made to permit refusal of the request.

All the information on the register must be disclosed except the residential address of a PSC. In light of the context of these reforms, it is likely that such a request would be considered improper only in limited circumstances.

Transparency and trust

The introduction of the PSC register is one of the most significant changes under the SBEE Act 2015 in relation to the Government's "transparency and trust" regime, and arguably reflects the current international agenda. Through these reforms it is intended to enhance the reputation of the UK as a trusted and fair place to do business by increasing transparency around who owns and controls UK companies, and make companies (and charities) more accountable.

Still some uncertainty

There is still some uncertainty as to the application of these new rules and companies will need to undertake a detailed review of the statutory and non-statutory available guidance available in order to familiarise themselves with the details and complexities of these new requirements, and scrutinise their own structure carefully in light of this.

This additional administrative burden will not be universally welcomed by companies and arguably some aspects of this new regime are not entirely appropriate for the charity sector. However, if a company has a clear chain of ownership, the obligation to keep and maintain a PSC register should not be overly onerous.


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