UK: What Companies Need To Do To Prepare For The New Beneficial Ownership Regime

Significant changes to Companies Act 2006 are in the process of coming into effect. Most significantly, from 1 January 2016 companies will need to keep and maintain a new register that records all the people or legal entities that have significant influence or control over it, the register of people with significant control (the PSC register). The provisions regarding the PSC register are set out in the new Part 21A Companies Act 2006, introduced by what has previously been described as the misleadingly titled Small Business, Enterprise and Employment Act 2015.

The regime is being introduced very quickly. The draft statutory instrument containing much of the detail has only recently been put out for consultation and the relevant guidance will only be published in the autumn.

The information will be available publicly, including at Companies House.

Companies need to get ready now and should not wait until the full set of subordinate legislation and guidance is in place.

What companies will need to do

There is a lot for companies to do. Set out below is a summary of the key requirements:

Who are the 'people with significant control'?

A person with significant control is someone that meets one or more of the following conditions for a single company:

i. directly or indirectly owns more than 25% of the shares;

ii. directly or indirectly holds more than 25% of the voting rights;

iii. directly or indirectly has the power to appoint or remove the majority of the board of directors;

iv. otherwise has the right to exercise or actually exercises significant influence or control; or

v. has the right to exercise or actually exercises significant influence or control over a trust or firm that is not a legal entity, which in turn satisfies any of the first four conditions.

Condition (iv) will capture formal and informal forms of influence or control. Statutory guidance about the meaning of 'significant influence or control' should be used to help establish whether a person has significant influence or control.

If there are no people or a legal entities that fulfil any of the conditions (i) - (v) above, the company should still hold a PSC register and should state on the register that there are no registrable people or entities.

Corporate groups

A corporate entity which is part of a company group might exercise significant control and fulfil the relevant criteria. A company must only record a legal entity in its PSC register as a "registrable relevant legal entity" if such entity exercises significant control and is also:

• required to hold its own PSC register; or
• subject to Chapter 5 of the Disclosure and Transparency Rules (as set out in the FCA/PRA Handbook); or
• has its voting shares admitted to trading on a regulated market in an EEA state.

Companies required to take reasonable steps

Companies must take reasonable steps to find out if there are any people with significant control, this may include considering the register of members and writing to company members to ask if they have transferred an interest in their shares to someone else. Failing to take reasonable steps is a criminal offence for which both the company and its offers are liable. It will also be a breach of statutory duty for the directors.

A company should serve a notice on a person or entity asking them to confirm that they have significant control or are a registrable relevant legal entity. The notice should also ask them, if they are a person or entity that should be registered, to confirm, correct or give information needed for the register.

It is a criminal offence for the people or entities not to respond to these notices within a month.

If people or entities do not respond to notices seeking information for the register, eventually restrictions may be placed on their interest in the company.

People or entities that do not respond to a notice (unless the notice was frivolous or vexatious) or knowingly or recklessly give false information in response to a notice may have committed an offence and may face imprisonment for up to two years or a fine or both.

Obtaining information from third parties

Companies can use the legislation to require people who do not have significant control, but may know about people or entities with significant control, to provide information. This makes it easier for companies to get information they need by contacting lawyers, banks, professional advisers or other third parties. Companies may give notice to any third party if they have reason to believe that they know the identity of:

• any people with significant control
• any registrable relevant legal entities
• any legal entities that have significant control but are not subject to their own disclosure requirements

Notices to third parties may ask people to give any information they know that might help the company identify a person or entity with significant control, or of any person likely to have that knowledge.

Once obtained, information must be confirmed as only confirmed information can be put on the register.

Updating information

Changes are needed to the register if any information is no longer correct. Companies must give notice to people or entities as soon as they learn of change or have reason to believe that there has been a change. This includes change of address.

This notice must ask the person or entity to confirm that a change has occurred to give the date of the change and confirm, correct or supply any information as appropriate.

If a company fails to obtain up to date information when they have reason to believe an update is needed, the company and its officers may have committed an offence. On conviction they could face a prison sentence of up to two years or a fine (or both).

People and entities should be pro-active about informing the company about changes that should be made to the register. It is an offence for people or entities not to do this when they are aware of changes that need to be made.

Recording the nature of control

For each person or entity included in the register, the register should state which of the five conditions (i)-(v) the person or entity satisfies and the banding of any share ownership or voting rights control.

Other statements that must be noted on the register

The company must, as the case may be, include certain further statements on its PSC register if it is not a complete register, for various reasons. These statements are that the company:

• believes that it has no people with significant control or relevant legal entities
• has reason to believe that there is a person with significant control and has taken reasonable steps to identify the person but has not been able to
• has identified that there is a person with significant control but does not have the persons confirmed particulars
• does not know if it has any people with significant control or relevant legal entities
• has issued notices and the recipient has failed to respond
• has placed restrictions on shares

For as long as restrictions are in place the shares are effectively valueless to the holder and the lifting of restrictions cannot have any pre-dated effect.

Registrable relevant legal entities

Not all relevant legal entities should appear on the register. To avoid the duplication of information on registers, where a company is owned through a chain of relevant legal entities, only the relevant legal entity that is immediately above it in the chain would appear on the register. That relevant legal entity is a 'registrable relevant legal entity' and the other relevant legal entities are non-registrable.

Next steps

The statutory instrument and guidance will be published in the autumn. Companies should start to think about the complexion of the share register to understand where PSC issues may arise and prepare itself for the period 1 January 2016 to 31 January 2016 when it will need to issue notices. To delay beyond the end of January 2016 is an offence, but similarly, the investigation cannot be conducted earlier, because the legal regime requiring complete and honest responses to letters from the company and linked sanctions and offences will not be in place.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.