Are You Ready For PSC Changes?
Since 6 April 2016, all companies and LLPs are required to create and maintain a register of persons having “significant influence or control” of them (the “PSC Register”).
Ostensibly, the purpose of the register is to improve corporate transparency and help combat tax evasion, money laundering and terrorist financing. However, the requirements apply to all UK companies and therefore impacts on smaller family businesses as well as large companies and their more complex structures.
A person has significant control over a company if one or more of the following specified conditions are satisfied:
- Directly or indirectly owning more than 25% of a company’s shares;
- Directly or indirectly holding more than 25% of the voting rights in a company;
- Directly or indirectly having the power to appoint or remove a majority of the board of a company’s directors;
- Exercising or having the right to exercise significant influence or control over a company; and/or
- Exercising or having the right to exercise significant influence or control over activities of a trust or firm which itself meets one or more of the above conditions.
While the first three conditions are relatively straightforward, conditions four and five employ the concept of “significant influence or control”. In order to shed some light on this phrase, the Department of Business, Innovation and Skills has issued guidance as to its meaning and provided a (non-exhaustive) list of examples of such influence or control. Although the notion of a right to exercise “significant influence or control” is fairly clear, the tricky part is whether a person actually exercises “significant influence or control”.
The first way in which a person could actually exercise “significant influence or control” is if they are significantly involved in the management and direction of the company. One such example is a person, who is not a member of the board of directors, but often 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.
Another way in which a person could exercise “significant influence or control” is if their recommendations are always or almost always followed by shareholders who hold the majority of the voting rights in the company, when they are deciding how to vote. The example offered in the guidance is that of a company founder who no longer has a significant shareholding, but makes recommendations to the other shareholders on how to vote and those recommendations are always or almost always followed.
Such scenarios could be relevant in the case of family businesses. For example, it is not uncommon for senior family members to continue to have a telling input into how the business run even after they have retired. It is setups like these which family businesses will now need to give thought to in order to ensure their PSC register is accurate. Please do not hesitate to contact us for further information as to how this may apply to your own business.
31st July 2020
The new act provides companies with flexibility needed as a consequence of the impact of the COVID.
27th July 2020
How has lockdown impacted the deals market? Find out in our latest deals download.
21st April 2020
A look at what is available to help during the coronavirus crisis.