Most companies are now aware that the requirement to maintain a register of people with significant control over them (the PSC register) came into force on 6 April 2016.
Everyone is on top of these requirements now – right? Not necessarily! One year later and the question of what actually constitutes a PSC is still a puzzle to many.
There are five PSC conditions, at least one of which needs to be met in order for someone to be registered as a PSC. So what are those five conditions, how might they be satisfied and where can we look for relevant information?
More than 25% of shares
The most straight forward condition is where the individual holds more than 25% of the shares in the company (note that the threshold is more than 25%, so someone with exactly 25% of the shares would not qualify). This condition can be very easy to deal with especially when a company is a wholly owned subsidiary of another UK company. This would mean that the holding company satisfies the condition and should be entered in the PSC register. Simple? Not quite…
More than 25% of voting rights
Generally, voting rights are linked to shares on a “one share, one vote” basis, so if someone holds more than 25% of the shares they will often hold more than 25% of the voting rights and satisfy this second condition. However, it is always important to check the company’s articles of association to discover any hidden potential PSCs if actually the shares carry different voting rights. For example, a shareholder may hold a single “golden share” giving them a majority of voting rights regardless of how many ordinary shares are in issue. So, be sure to check those articles, and any other voting arrangements, carefully!
Appointment and removal of the majority of directors
This condition does not necessarily link to individual shareholdings and is another situation where you may need to dig out the articles or a related shareholders’ agreement. For example, an “A Shareholder” may have the right to appoint and remove “A Directors”. Depending on how many directors the company has, and what proportion of them are A Directors, this PSC condition may be triggered, even if the A Shareholder holds less than 25% of the overall shares or voting rights.
Significant influence or control
This condition is considered to be more of a “catch all” where someone is exerting control over the company and ought to be registered as a PSC but they are not caught by any of the above conditions. There is statutory guidance on how this condition might be triggered but a range of factors need to be considered, such as whether a person has absolute decision or veto rights over significant company decisions, whether they are significantly involved in the management and direction of the company (such as a shadow director) or whether a majority of shareholders tend to follow their voting recommendations.
Where it gets even more complicated…
Where the company is controlled by something which is not a legal entity (a partnership or a trust) or an overseas company, it is necessary to “look through” that entity to find the individual who controls the partnership or trust, or who has a majority stake in an overseas company. For example, someone with the right to appoint trustees of a trust, or partners in a partnership, could qualify under this condition. And you have to keep “looking through” a chain of non-registrable entities until you get to an individual or legal entity which meets a condition and is registrable (or you conclude that no such person exists). This can be a lengthy process for companies which are part of a complex group structure!
For anyone still grappling with the PSC register (perhaps because they are filing the first confirmation statement on which this information must be included), see our previous blog Five simple steps to the PSC register and remember to check the Government guidance which may help shed some light on those still lurking in the company’s shadows.