As one of several initiatives designed to subject more and more people’s affairs to public scrutiny, the United Kingdom has, since 6 April, been requiring all companies by law to maintain a register of the people who can influence or control the company – its PSCs or persons with significant control – and keep it up-to-date. It hopes to make this a model for the offshore world to follow.

The information maintained on the PSC register includes details such as the names, dates of birth, addresses and nationalities of the company’s PSCs and the basis on which they qualify as PSCs.

Similar registers are expected to be introduced in other EU member states – including Luxembourg, Ireland, Malta and Cyprus – under the EU’s Fourth Money Laundering Directive and many offshore jurisdictions already collect information about company beneficial ownership.

As of 30 June, each company that files its confirmation statement (which replaces the annual return) at Companies House has to include details of its PSCs. Anyone who wants to incorporate a new company also has to provide similar information.

Confirmation statements are currently available for viewing on the Companies House website. Accordingly, from July 2017 (by which time every UK company will have sent off a 'confirmation statement) onwards it will be possible for anyone to see if a British company has any PSCs and, if so, who they are. In other jurisdictions, the beneficial ownership information is only available to taxmen and policemen and is not made public.

If an individual can show that he is at risk of intimidation or violence because of his connection with a certain company, he can apply to have his full details suppressed. In such cases, the PSC register will include a statement that a PSC exists but that his details are not available.

The identification “persons with significant control”

A PSC is an individual who meets one or more of the following conditions in relation to a British company.

Condition 1: he directly or indirectly holds more than 25% of the shares (but shares held by a person as nominee for another are treated for these purposes as being held by the other person).

Condition 2: he directly or indirectly holds more than 25% of the voting rights.

Condition 3: he directly or indirectly holds the right to appoint or remove the majority of the directors.

Condition 4: he otherwise has the right to exercise, or actually exercises, significant influence or control.

Condition 5: he has the right to exercise, or actually exercises, significant influence or control over the activities of a trust or a firm that is not a legal entity, but would itself satisfy any of the first four conditions if it were an individual.

Ease of identification

In many instances, the identification of PSCs is likely to be easy. In other instances, for example in the case of a complex ownership structure, identification might be rather difficult. The requirement, however, is clear – to identify any human being who has the right to exercise, or actually exercises, significant influence or control over the company. Some companies may not have anyone who meets those conditions, in which case the entry on the company’s PSC register will state that it has no PSCs.

HM Government has produced guidance, including statutory guidance, about the meaning of the term “significant influence or control.” This provides a number of principles and examples that might be indicative of how one goes about holding the right to, or actually exercising, significant influence or control over a company or the activities of a trust.

It is not difficult to imagine situations in which there could be a difference of opinion about whether an individual’s behaviour makes him a PSC. Does a person who is not a director regularly or consistently direct or influence significant decisions? Does a person with no significant shareholding make recommendations to other shareholders which they always, or almost always, follow? Does a person who is not a trustee regularly or consistently influence the decisions of the trustees?

Every firm or trust must take reasonable steps to identify its PSCs. The nature of ‘reasonableness’ will depend on the particular circumstances of the case. At a minimum, the firm ought to record all the steps that it takes. There are legal requirements with which it must comply and formal procedures that govern requirements to provide information. Failure to comply can lead to a criminal offence.

An individual who knows he has become a PSC of a company but has not been contacted by that company must provide the information required for the PSC register within one month from the moment at which he knew or ought to have known of the situation. Failure to do so is a criminal offence.

Companies controlled by other legal entities

A PSC is, by definition, a human being, but a legal entity (such as a firm or trust) must be put on the company’s PSC register if it is both relevant and registrable in relation to the company. Broadly speaking, a legal entity will be a so-called ‘relevant legal entity’ if is subject to its own disclosure requirements (in most cases this will be thought to obtain if it keeps its own PSC register) or is listed on a market whose name it has specified. A relevant legal entity will be registrable if it is the first relevant legal entity in the company’s ownership chain.

A legal entity that is not a relevant legal entity is not registrable and cannot be entered on the PSC register. If this is the case, the firm must then look further up its chain of ownership and control until either it identifies a relevant legal entity or an individual who has a majority stake in the relevant entity or until it establishes the fact that no PSC exists.

An individual can be said to have a majority stake if:

• he holds a majority of the voting rights in the legal entity;
• he is a member of the legal entity and has the right to appoint or remove a majority of its board of directors;
• he is a member of the legal entity and controls a majority of the voting rights by agreement with other shareholders or members; or
• he has the right to exercise or actually exercises dominant influence or control over the legal entity.

Trusts and Condition 5

Trustees are not treated differently from other persons and corporate trustees are treated in the same way as any other corporate shareholder. If a British company is held directly or indirectly in a trust and the trust would, if it were an individual, meet any of conditions 1 to 4:

• each trustee who is an individual ought to be registered as a PSC in relation to the company;
• if the trustee is a British trust company, it is a relevant legal entity and is therefore registrable in relation to the company;
• if the trustee is an offshore trust company, it will be unlikely to be an RLE and so will not be registrable; its ownership should be explored to identify if there is an individual with a majority stake and, if so, that individual should be registered as a PSC in relation to the company; and
• if the trustee is an offshore private trust company owned by a purpose trust, the trustee of which is an offshore trust company, then someone should explore the offshore trust company’s ownership, as above, to find out whether there is an individual with a majority stake in the offshore trust company who is registrable as a PSC.

Under condition 5, if someone other than the trustees has the right to exercise, or actually exercises, significant influence or control over the activities of the trust, he should also be shown on the PSC register. Condition 5 cannot be met unless the trustees themselves meet at least one of the first four conditions in relation to the company in question (or would do if they were individuals).

According to the statutory guidance, a person has the right to exercise significant influence or control over a trust if that person has the right to direct or influence the running of the activities of the trust, including the right:

a) to appoint or remove any of the trustees, except through application to the courts, or as a result of a breach of fiduciary duty by the trustees;

b) to direct the distribution of funds or assets;

c) to direct the decisions that the trust makes about investments;

d) to amend the trust; or

e) to revoke the trust.

A person is likely to exercise significant influence or control over a trust if he is regularly involved in the running of the trust, for example if he is a settlor or beneficiary who issues instructions, which are generally followed, about the activities of the trust to the trustees. This also includes any person whose consent is required for the exercise of trust powers.

Wherever a British company is directly or indirectly owned by a trust, in addition to any registrable trustee PSCs:

• if the settlor has reserved any of the above powers to himself, that settlor ought to be registered as a PSC in relation to a British company owned by the trust whether or not he exercises those powers;
• if the settlor has not expressly reserved any powers to himself but nevertheless is actively involved in directing the activities of the trust, that settlor should be registered as a PSC and so, by the same token, should any beneficiary who is similarly involved and influences the trustees;
• a protector or enforcer who has the power to appoint or remove any of the trustees of the trust ought to be registered as a PSC; and
• any other person who holds any of the powers listed in the guidance or otherwise exercises significant influence or control over the trust ought also to be registered as a PSC.

The entry on the PSC register says:

The person has the right to exercise, or actually exercises, significant influence or control over the activities of a trust; and the trustees of that trust (in their capacity as such) hold, directly or indirectly, [75% or more] of the shares in the company.

Foreign companies that own property in the UK

On 4 March this year, HM Government published a ‘discussion document’ about its proposal to create a register that would require foreign companies that already owned or wished to purchase property in the UK, whether residential or commercial, to divulge the details of their beneficial ownership to it.

If the proposal is given effect, those foreign companies will probably have to disclose the details of their beneficial ownership in a manner similar to the one for determining the PSCs of British companies. The PSC register requirements, in other words, are likely to be extended to foreign companies that own property in the United Kingdom.

Some details about such companies are already freely available to the public. In March, the UK’s Land Registry published a list of them that bears information about the property (address, title number) and the foreign company (name, place of incorporation, correspondence address).

Exchange of beneficial ownership information between jurisdictions

In April this year, the UK reached agreements with the Crown Dependencies and British overseas territories that oblige them to divulge the details of beneficial owners of companies and other legal entities to British taxmen and policemen within 24 hours of being asked.

On 14 April, the major EU countries, including the UK, launched an initiative for the automatic exchange of trusts and company beneficial ownership information. More countries, including the Crown Dependencies and British overseas territories, quickly signed up.

The aim is to create national registers that contain full beneficial ownership information which are interlinked and available to taxmen and policemen. As the readers of Compliance Matters know only too well, not all countries are as willing as the UK to make beneficial ownership information freely available to the general public.

* Edward Stone helps ultra-high net worth clients with wealth, successional and asset protection planning. He can be reached at edward.stone@irwinmitchell.com