Persons of Significant Control: important changes to reporting requirements

It’s barely a year since the introduction of the PSC regime - and already, the compliance requirement has been tightened.

And at a time when many businesses are still grappling with the issues raised by the original PSC requirement, the result is a significant ratcheting-up of the associated compliance burden.

Consequently, given that the new, tougher PSC regime takes effect from June 26th 2017, businesses will want to understand what has changed, and how they need to respond.

Persons of Significant Control

Up until April 6th 2016, the Companies Act required businesses which were limited companies or limited liability partnerships to maintain a register of shareholders and annually update this on the register at Companies House through the Annual Return (AR01).

With the arrival of the PSC requirement, that changed. The Annual Return was replaced by an Annual Confirmation Statement, through which businesses notified Companies House of the presence of ‘persons of significant control’ (which may be individuals or companies (Relevant Legal Entities) on the shareholder register.

Statutory guidance defined exactly what was meant by ‘significant control’. But in simple terms, it can be thought of as those people who were the ultimate beneficiaries of significant shareholdings, although the definition also embraces ‘shadow’ directors, and shareholders acting in concert.

Individuals, not shareholdings

The problem posed by the PSC legislation is that many businesses’ shareholders include trusts, nominee holdings, or other companies.

Formerly, businesses needed to only report the names of those trusts, nominee holdings, or other companies. Under the Persons of Significant Control legislation, they now needed to identify the individuals controlling or owning those trusts, nominee holdings, or other companies—information that they might not have previously possessed.

No matter. The statutory guidance was very clear: businesses would need to make enquiries as to the individuals who possessed a beneficial interest in those holdings, and be able to demonstrate that they had done so. (Incidentally, for more information on the original Persons of Significant Control legislation, see our earlier blog on the topic: New rules on shareholder identification are now in force—and many businesses aren’t aware of them’.)

So what has changed?

As from June 26th 2017, there has been an important change to the way that the reporting of Persons of Significant Control takes place.

The original requirement was for this reporting to be performed though the Annual Confirmation Statement that businesses submitted to Companies House. No longer: instead, it must now be carried out in real time, through a series of forms.

If a significant shareholding is bought, or changes hands, then the buyer must notify this to Companies House on the appropriate form, detailing the relevant Persons of Significant Control.

Likewise, if a significant shareholding is sold, then the seller must also notify this to Companies House, on a different form, again detailing the relevant Persons of Significant Control.

In short, the reporting of those Persons of Significant Control behind a business—your business—has changed from an annual ‘snap shot’, to an ongoing requirement.

Your business is affected: compliance is mandatory

Fairly obviously, the new Persons of Significant Control regime will affect some businesses more than others. No business is exempt, but the nature of some businesses is such that compliance will be called for on a more regular basis.

Our belief, for instance, is that businesses with venture capital firms or business angels as shareholders—or where family shareholdings are involved—will want to think very carefully about how such compliance is to be managed.

Why is such legislation required at all? It’s a question that we are often asked. The answer is that the changes are part of the European Union’s Fourth Money Laundering Directive, which aims to clamp down on money laundering and terrorist financing. So it’s a very worthwhile goal—but that doesn’t make compliance any easier.

Can we help?

The Persons of Significant Control requirement is in place now. Businesses must comply now, both in terms of reporting Persons of Significant Control, and doing so immediately upon a change in share ownership or other factors of control.

That said, here at The Legal Director, we’ve discovered that many of our business clients are unsure about how best to manage the process. Moreover, given that non-compliance will be easily identified in any due diligence process carried out by a prospective buyer of your business, an effective compliance process can have an impact on the value placed on your business by any such buyer.

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

Posted Thursday, June 22nd, 2017 by Warren Ryland



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