Since the People with Significant Control (PSC) requirements were introduced in 2016, UK companies have had to identify who ultimately owns or controls them and report that information to Companies House.
The basic question remains the same, but the context has changed. As a result of the Economic Crime and Corporate Transparency Act 2023 (ECCTA), Companies House now has a more active role in checking the information on the register and will proactively ask questions where it is not satisfied with the accuracy of the filed information.
ECCTA has also changed fundamental elements of the PSC regime, including that companies are no longer required to maintain and hold their own local PSC register, and identity verification requirements now apply to individual PSCs. But one point has not changed: companies still need to work out who their PSCs are in the first place.
That means the five PSC conditions remain as important as ever. What are they, how might they be satisfied and where can companies look for guidance?
Condition 1: More than 25% of the shares
The most straightforward condition is where an individual holds, directly or indirectly, more than 25% of the shares in the company. The threshold is “more than” 25%, so someone with exactly 25% does not satisfy this condition. The percentage is calculated by reference to the nominal value of the shares, and all shares in issue should be included when calculating shareholdings.
This condition can look simple to apply, especially where it is an individual who holds the shares. It may also be straightforward when the company is wholly owned by another company. However, it is still necessary to consider whether that legal entity is registrable as a relevant legal entity (see below) or whether the company must look further up the chain to find an individual or other registrable person.
Condition 2: More than 25% of the voting rights
Voting rights often follow shareholdings on a “one share, one vote” basis. If so, someone who holds more than 25% of the shares will often also hold more than 25% of the voting rights. But this should not be assumed. The company should check its articles of association, any shareholders’ agreement and any other arrangements affecting voting rights. A small number of shares may carry enhanced voting rights, or a particular shareholder may have rights which give them more than 25% of the votes even though their economic stake is lower. Voting rights may also only apply in certain circumstances and this should be checked before any calculation is made.
Condition 3: The right to appoint or remove a majority of the directors
This condition, which applies to the right to appoint or remove directors with a majority of the board level voting rights, is not necessarily linked to share ownership. It may be triggered by rights in the articles, a shareholders’ agreement or another constitutional or contractual arrangement. For example, a particular shareholder may have the right to appoint and remove a class of directors. Depending on the size and composition of the board, that right may amount to the ability to appoint or remove a majority of the directors, even if the shareholder holds 25% or less of the shares or voting rights.
Where a person holds more than 50% of the voting rights, they could use their votes at a general meeting to pass an ordinary resolution to remove a director under section 168 Companies Act 2006. As such, unless the articles of association or a shareholders’ agreement restricts the relevant person from exercising their statutory right under section 168, a person holding more than 50% of the voting rights will also satisfy condition three.
Condition 4: Significant influence or control over the company
This condition is designed to catch people who exercise, or have the right to exercise, significant influence or control over the company but who are not caught by the first three conditions.
The statutory guidance explains how this concept should be interpreted. Relevant factors may include absolute decision or veto rights over significant company decisions, significant involvement in the company’s management and direction (such as by a shadow director), or a pattern of shareholders following a person’s recommendations. The analysis is fact-specific, so companies should record the basis for their conclusion.
Condition 5. Significant influence or control over a trust or firm
The fifth condition applies where:
- a trust or firm (without legal personality) would satisfy one of the other PSC conditions in relation to the company if it were an individual: and
- a person has the right to exercise, or actually exercises, significant influence or control over the activities of that trust or firm.
Where these requirements are satisfied, the person with significant influence or control over the activities of the trust or firm is a PSC of the company.
This can be relevant, for example, where shares are held by trustees (on behalf of a trust) or by the general partner on behalf of a limited partnership. A person with power to appoint or remove those trustees, or to direct how partnership rights are exercised, may need to be considered as a PSC under condition 5.
Are all legal entities registrable?
The PSC regime recognises that a company may have legal entities with significant influence or control over it. A legal entity, however, may only be registered in the company’s PSC register if it is a relevant legal entity (RLE).
The test for an RLE is that the legal entity:
- is a body corporate or firm that is a legal person under the law by which it is governed;
- would be a PSC over the company if it were an individual; and
- is subject to its own disclosure requirements (which includes UK companies that are required to keep a PSC register and listed companies that have shares admitted to UK or EU regulated markets or to certain markets in Israel, Japan, Switzerland or the USA).
If a legal entity does not meet the RLE test (for example, an unlisted overseas company) it cannot be registered in the company’s PSC register. It will then be necessary to look through this entity to find an indirect PSC or RLE that is registrable or conclude that no such person exists. This can be a lengthy process for companies that are part of a complex group structure.
Comment
The PSC regime has moved on since 2016, but the starting point has not. Companies still need to take reasonable steps to identify their PSCs, keep the information at Companies House accurate and up to date, and respond properly if Companies House queries what has been filed.
The Government’s PSC guidance, including the statutory guidance on significant influence or control, should be checked whenever the position is unclear. In a regime built around transparency and a more active registrar, getting the five conditions right is still the foundation of compliance.