New rules on shareholder identification are now in force

New rules on shareholder identification are now in force - and yet many businesses aren’t aware of them.

Does your business have corporate or nominee shareholders? Perhaps a family trust, or a corporate shareholding through a venture capital firm? Or one or more ‘business angels’, with veto powers over particular developments? Or perhaps a number of minority shareholders from the same family, who tend to vote in the same way?

If so, and if you’re an unlisted limited company or limited liability partnership (LLP), then you’ll be directly affected by changes to the Companies Act 2006 that came into force on April 6th.

And as criminal sanctions come into play for businesses that don’t comply, you’ll certainly want to make sure that you don’t inadvertently fall foul of the law.

The trouble is, in this particular case, that could well be more difficult than you might imagine.

Persons with significant control

The changes in question are aimed at increasing transparency, by forcing the disclosure of ‘persons with significant control’ (‘PSC’) – those individuals that are ultimately in control of a company.

As things stand at the moment, the law requires all companies to maintain a register of shareholders, and notify Companies House of their identity through the Annual Return that companies must submit. The requirement is limited to identifying who are the legal owners of a company – which may be different from the beneficial owners.

As from April 6th, companies will have to maintain an additional register of PSCs—a requirement that is quite separate, and very different from, the present register of shareholders. And from June, full particulars of those PSCs will then have to be submitted during the Annual Confirmation process that is replacing the Annual Return, with criminal sanctions applying in the case of non-compliance.

What are ‘reasonable steps’?

As is so often the case, the devil is in the detail.

In the case of shareholders in the shape of trusts, nominee holdings or companies, businesses will need to make enquiries as to who possesses a beneficial interest in those holdings.

This may or may not be a straightforward process. But it’s certainly not a box-ticking exercise: the government’s draft non-statutory guidance is quite clear about what actions companies should take to identify any PSCs, like reviewing shareholders’ agreements and considering whether voting patterns suggest some shareholders may be acting together. If necessary, companies should serve notices to elicit relevant information. As criminal sanctions again apply where those receiving these notices fail to respond, it’s not something that shareholders can ignore either.

Further guidance—this time statutory—defines exactly what is meant by ‘significant influence’ or ‘control’. And our belief is that businesses with venture capital firms or business angels as shareholders, or where family shareholdings are involved, will want to review these guidelines very carefully.

What to do?

It’s not difficult to see why the government has brought this legislation into being. A lack of transparency into issues of corporate ownership and control presents obvious opportunities for illicit activity—opportunities ranging from tax evasion to outright criminal acts.

But from our clients’ perspective, the way the government has chosen to deliver this transparency will cause undoubted headaches.

Registers of PSCs must be maintained and published, and steps taken to identify PSCs when businesses are not already aware of who those PSCs are. Should information on PSCs not be forthcoming when businesses make their enquiries, various restriction procedures then apply.

Moreover, it’s important to note that anyone can ask to inspect a company’s PSC register at any time.

Can we help?

The PSC requirement is in place now. Businesses must comply now.

That said, here at The Legal Director, we’ve discovered that many of our clients are unsure about their obligations, and struggling to manage the process.

So for straightforward advice on how best to comply, or for help in delivering that compliance, pick up the phone, or email

Posted Monday, April 11th, 2016 by Warren Ryland



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