The People with Significant Control register became a requirement for most unlisted UK companies (including charitable companies) from 6 April 2016. As the name suggests, it is there to record the individuals that have significant influence or control over a company.
It is a requirement for this register to be kept up to date and sent to Companies House with the company’s annual confirmation statement. Once received this information will form part of the company’s public register held by Companies House.
This blog will walk you through how to identify a Person with Significant Control (PSC) and what the implications are for charities and their trading subsidiaries.
What is a PSC?
This is a person (natural or legal) that has at least one of the 5 following conditions:
- They hold more than 25% of the shares in the company.
- They hold more than 25% of the voting rights in the company.
- They hold the right to appoint or remove the majority of the board of directors.
- They have the right to exercise or actually exercise ‘significant influence or control’ over the company.
- They have the right to exercise or actually exercise ‘significant influence or control’ over a trust or firm that itself meets any of conditions 1 – 4.
If the person meets any of the first 3 tests, then it is not necessary to go on and consider tests 4 and 5. However, do check the ‘excepted roles’ below before reporting.
As already mentioned, the persons that should be included on a company’s PSC register can include both natural persons and legal entities. However, for legal entities, they are only entered onto the register if they are both ‘relevant’ and ‘registrable’.
- Relevant – means the legal entity meets one or more of the 5 conditions above and either keeps its own PSC register or it has voting shares admitted to trading on a regulated market1
- Registrable – means the legal entity is the first relevant legal entity in the company’s ownership chain.
A company only reports the first registrable persons in an ownership chain. For example, if A (a natural person) holds 100% of the shares in company B, and B holds 100% of the shares in company C, then company C would report company B in its PSC register and company B would report natural person A in its PSC register.
Before reporting, you will need to consider if the natural or legal person you had in mind meets one of the following ‘excepted roles’. These roles are not considered, on their own, to result in a person having significant influence or control, and include:
- Employees acting in the course of their employment.
- Representation rights held by a group of employees.
- Professional advisors and third party commercial or financial agreements.
- A person who makes one off recommendations.
So what does this mean for charities and their trading subsidiaries?
In short, it depends on what type of charity you are. I have included below some guidance for the more common structures, but I recommend speaking to an advisor if your situation is more complex.
- Charitable company limited by guarantee – as a limited company the charity will have to keep its own PSC register. The charity should review its articles of association and register of members to establish who holds the voting rights in the company. If the charity has 4 or more vote holders and their votes are equal, then there are likely to be no PSCs. If a charitable company has 3 or fewer vote holders, each with equal votes, then they are each likely to be a PSC. However, where members act together, where there are nominees or joint holdings, then further analysis may be required. If a charitable company holds all the shares in a limited company (for example a trading subsidiary), the parent charity is the PSC for the trading company as it is both relevant and registrable.
- CIOs, SCIOs and Royal Charter companies – these entities are not required to keep their own PSC registers. If such an entity holds all the shares in a limited company, the parent entity is not itself a relevant legal entity so should not be included in the company’s PSC register. However, if any person holds more than 25% of the voting rights in the parent entity or has the right to exercise or actually exercises significant influence or control over the parent entity, then that person may have to be included in the trading company’s PSC register.
- Charitable trust – an unincorporated charitable trust is not required to keep its own PSC register. If a charitable trust holds all the shares in a limited company (including shares held by trustees as nominees), the trust is not itself a relevant legal entity so should not be included in the company’s PSC register. However, if a person has the right to exercise or actually exercises significant influence or control over the trust, that person will meet test 5 and may therefore have to be included in the company’s PSC register.
What if we don’t have a PSC?
If there are no PSCs, then the following entry must be made on the PSC register:
“The company knows or has reasonable cause to believe that there is no registrable person or registrable relevant legal entity in relation to the company.”
1 This applies to voting shares admitted to trading on a regulated market in the European Economic Area (including the UK) or on specified markets in Switzerland, the USA, Japan, Israel, or it is subject to Chapter 5 of the Financial Conduct Authority’s Disclosure and Transparency Rules.