New rules mean companies must disclose all individuals with significant links to their business – with strong penalties for non-compliance.
In recent years, momentum has been building worldwide for companies to provide a higher level of financial transparency. The G20 and International Monetary Fund are just two of the international bodies that have campaigned for a change in corporate culture.
More recently, the leak of the Panama Papers, which detailed the offshore holdings of a large number of high-profile figures in politics and business, has added to the pressure on legislators to raise corporate reporting standards.
In the UK, new legislation on corporate transparency was introduced by David Cameron’s government and came into force at the beginning of the current tax year. As a result of the change, all UK companies and limited liability partnerships (LLPs) are subject to a new ‘beneficial ownership and control’ regime.
Under the new law1, companies and LLPs must create, maintain and publicly disclose a register of ‘people with significant control’ (PSC). PSCs include anyone who ultimately exerts significant influence or control over a UK business, whether directly or indirectly.
The law makes non-compliance a criminal offence on the part of the company’s directors. Penalties include unlimited fines and up to two years imprisonment.
Letter of the law
Under the ruling, all UK companies were obliged to create a PSC register by 6 April 2016 (unless exempted due to being listed in the UK – see link below). Broadly speaking, there are two requirements that a PSC register needs to meet:
- Personal information about PSCs (name, address, date of birth, nationality etc.) and the nature and extent of their control of the business – or, failing that, proof of steps taken to complete the register and an explanation of why details could not be gathered
- Submission of the requisite prescriptive statements and relevant supporting analysis concerning the disclosure itself (see link below for full details)
As of 30 June this year, the onus is also on UK companies and LLPs to send their PSCs to Companies House as part of a new annual confirmation.
There are three criteria that describe a person with significant control – should any of these criteria accurately describe a given person, then that person must be listed on the submission to Companies House. The three criteria are:
- An individual who directly or indirectly owns more than 25% of the shares
- An individual who directly or indirectly owns more than 25% of the voting rights
- An individual who holds the right to appoint or remove the majority of the board of directors of the company
The following two criteria may also be applicable, but business owners should refer to the government’s statutory guidance for further details (see web address below):
- An individual or entity who has the right to exercise significant influence or control over the business – or who has demonstrably done so
- An individual who holds the right to exercise (or who does exercise) significant influence or control over a trust or firm that would (if it were a person) meet the four criteria listed above
Since this legislation is now in force, it is important for any business owners who have not already done so to act quickly in disclosing their register of PSCs, and in sending the requisite submission to Companies House.
Further details about PSCs can be found on the government website at: https://www.gov.uk/government/publications/guidance-to-the-people-with-significant-control-requirements-for-companies-and-limited-liability-partnerships.
1 Register of People with Significant Control Regulations 2016
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