Limited companies must disclose who the persons of significant control are. Failure to provide accurate information is a criminal offence.
You could receive an unlimited fine and up to 2 years prison sentence. Have you checked your register is correct???
Introduction of the persons of significant control register
The confirmation statement replaced the annual return in the summer of 2016. The documents were very similar however the confirmation statement had a new filing requirement.
This was to state whom the persons of significant control are. These are sometimes referred to as PSCs.
It was introduced as part of a money laundering clamp down. It was felt that some companies were artificially hiding the true beneficial owners of the company.
Identifying persons of significant control – share capital rules
An individual who owns more than 25% of the share capital.
What to do: Add up all of the shares in issue. It doesn’t matter if they are alphabet shares such as Ordinary A, Ordinary B, etc or whether they are voting or non-voting shares. Add them all up. Does any individual own over 25% of the total? If so, they are persons of significant control.
An individual who owns 25% of the voting rights.
What to do: Add up all the voting shares in issue. Include all shares including alphabet shares which have voting rights. But do not include any shares which are non-voting shares. Does any individual own over 25% of the total? If so, they are persons of significant control.
Holds the right to appoint or remove directors.
What to do: You need to check the company articles. However this is typically where an individual owns over 50% of the voting rights. A single director only company would typically satisfy this condition.
Identifying persons of significant control – share capital examples
A single Director owns 100% of all shares.
This individual satisfies all 3 conditions above and therefore must be shown on the PSC register. The register must state all 3 conditions as follows:
Ownership of shares – 75% or more
Ownership of voting rights – 75% or more
Right to appoint and remove directors
A company with two Directors each owning 50% of share capital.
Both individuals satisfy conditions (i) and (ii) above and therefore both must be shown on the PSC register. The register must state the 2 conditions as follows:
Ownership of shares – More than 25% but not more than 50%
Ownership of voting rights – More than 25% but not more than 50%
A company has 6 classes of shares in issue. The Ordinary A, Ordinary B and Ordinary C shares are voting shares. The Ordinary D, Ordinary E and Ordinary F shares are non voting shares. Each class of share has 1 in issue. The 6 shareholders own just 1 share each.
Therefore no shareholder satisfies condition (i) as they each own 16.67% of the company (1/6th).
The 3 shareholders who own the Ordinary A, Ordinary B and Ordinary C shares satisfy condition (ii). They each own 33.33% (1/3rd) of the voting shares so they must be shown on the PSC register. No shareholder owns over 50% therefore condition (iii) is not meet.
The register would contain 3 shareholders each with the following statements:
Ownership of voting rights – More than 25% but not more than 50%
Identifying persons of significant control – significant influence
IMPORTANT: You would only consider this option if the individual DOES NOT meet one of the conditions (i) to (iii) shown above.
If the individual owns more than 25% of the shares they MUST NOT state significant influence as a condition for being a persons of significant control.
An individual who has the right to exercise significant influence or control over the company are persons of significant control.
The guidance does state that a Director carrying out the normal duties expected of a Director is not a persons of significant control.
For a Director to satisfy condition (iv) and be considered a persons of significant control they must go further than what an outsider would expect. One of the examples given in the guidance is as follows:
‘A director who also owns important assets or has key relationships that are important to the running of the business (e.g. intellectual property rights), and uses this additional power to influence the outcome of decisions related to the running of the business of the company’
Identifying persons of significant control – significant influence example
The detailed guidance provided by the government includes situations in much more detail so we would advise you read this. Attached to the bottom of this blog is a weblink.
Is there a persons of significant control if a company has 4 Directors each owning 25% of the share capital?
The answer to this is most likely no. In this scenario no individual meets conditions (i) to (iii) and their influence is just part of their expected role of being a Director. The register should not be blank but it should state that there are no persons of significant control.
However if one of the Directors brings something extra, such as important assets then that individual may be a persons of significant control.
This can become subjective. However the guidance does state that the use of condition (iv) is expected to be rare. Therefore the nature of control option of ‘significant influence or control’ will not be applicable in most scenarios.
There is a (v) condition. This is where a trust or a firm satisfies any of the 4 conditions. If this is applicable to you then please see the detailed government notes which is available in the weblink at the end of this blog.
How to check your persons of significant control register
All of the persons of significant control should be shown on Companies House register. You do not need to register to view this information.
To access your company follow these steps:
- On any web browser open the following link: Companies House
- Select the top option which states ‘Find Company Information’
- Select ‘Start Now’ which is in a green button
- Enter your company name in the search box
- Select your company from the search list results
- The webpage defaults to the ‘Overview’ tab. Select the tab titled ‘People’
- The webpage defaults to the ‘Officers’ tab. Select the tab titled ‘Persons with Significant Control’
- Finally your Persons of Significant Control register will be showing
If you believe the information is incorrect you must update this information immediately.
What is the punishment?
Per the Governments documentation they state that failure to provide accurate information on the persons of significant control register is a criminal offence. It may result in a fine and or a prison sentence of up to 2 years.
As yet we aren’t aware of any cases of prosecution. The truth is that there may never ever be any prosecutions but from a personal point of view we wouldn’t want to take that risk.
It isn’t unusual for Government authorities to have a grace period when implementing any new legislation. So it is a gamble to assume that in the future the authorities won’t commence issuing a penalty.
We would therefore question the logic regarding introducing a new filing requirement. Insisting on their being penalties attached for failure to comply. Yet having no intention of enforcing the new requirement.
In truth nobody knows if this would be enforced by Companies House. We recommend that you aren’t the unlucky one who finds out the hard way.
We have commenced acting for several companies recently. These have come from different accountancy firms and some have had incorrect persons of significant control registers.
Therefore don’t just assume that your accountant or advisor has filed this correctly as it is your responsibility.
If you do find your accountant has filed this document incorrectly then you should really consider changing accountants. Obviously we would say that but consider:
Firstly your accountant has put you and your business at risk of potentially significant penalties.
Secondly this is a simple requirement. It requires the accountant to have a little bit of knowledge of the rules and a little bit of knowledge about the client. Both should be a given for any accountant.
And thirdly to get this wrong must make you at least consider what else has your accountant potentially done incorrectly?
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