The legislation requires companies to take “reasonable steps” to ascertain whether there are any PSCs and, if there are, to identify them.
What constitutes “reasonable steps” will differ from company to company but, especially because the penalties for non-compliance may be severe, company directors and their accountants may well err on the side of caution.
Let’s walk through the typical process a company will follow, step by step.
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1 Consider whether there are people who have significant control
A company must take reasonable steps to:
- Find out if there’s anyone who’s an individual with significant control or a registrable relevant legal entity for the company; and
- Identify them, if any exist
Essentially, the company is looking to see if there’s anyone who meets one or more of the following conditions:
- They hold more than 25% of the company’s shares
- They hold more than 25% of the company’s voting rights
- They have the power to appoint or remove a majority of the company’s board
- 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 a firm that is not a legal entity which itself satisfies any of the first four conditions.
In many cases the identity of the PSCs will be obvious. For example, in a company with just two shareholders who each own 50% of the shares and where the company has adopted the model articles, it will most typically be these two shareholders and no one else who will be PSCs.
The situation will be more complicated, and more investigation is required, if:
- The company has adopted bespoke articles of association
- A shareholders’ agreement exists that confers special rights upon certain shareholders
- Any other agreement or covenant exists that gives certain persons special rights
- Shares or rights are held by corporate entities, only some of which need to be included in the register. In some cases, it’s necessary to look further up the chain of ownership to identify PSCs
- Shares or rights are held as part of a trust or firm without its own legal identity
- Shareholders hold shares on behalf of or are directed to vote by someone else
- There’s the possibility that shareholders have arrangements in place to act together
In other articles we’ll explore in detail each of the five PSC conditions and how to investigate whether anyone meets them, but the starting point will always be to consider the documents and information available to you. The register of members, articles of association, any shareholders’ agreement or other agreement relating to shares, voting or other rights will all be relevant for most companies. For LLPs, the LLP agreement and any other agreement between LLP members should be reviewed.
Do what you think a reasonable person would do if he or she knew what you know
The company can’t choose just not to make further investigations, especially where the available evidence suggests the possible existence of a PSC. You should do “what you think a reasonable person would do if he or she knew what you know”.
Especially given the penalties for non-compliance, it’s a good idea to keep a record of the investigative steps you’ve taken (and, indeed, of the actions you take later in the process).
After some investigation, you’ll conclude either that:
- The company has no PSCs – in which case, your initial work is largely done. While there are no people with significant control to enter in the PSC register, it must still contain a prescribed statement that there are no PSCs; or
- There are, or you have reasonable cause to believe there are, PSCs or registrable RLEs. This may be a mix of cases where you know the identity of the PSC and those where you think a PSC exists but, without getting further information from others, you don’t know who they are.
2 Contact potential PSCs and others to confirm PSC status and, where appropriate, confirm prescribed details
A company must give notices under section 790D, whether by post or email, to anyone who it knows or has reasonable cause to believe is a PSC or registrable RLE. In some cases, the company may write to other people who may have information to help identify a PSC.
Let’s look at these in turn.
A. Notices to an individual PSC
A notice sent to an individual PSC must require the addressee:
- To state whether or not they are a registrable person in respect of the company
- If so, to confirm or correct certain specified particulars included in the notice, and also supply any that are missing
Information about individual PSCs must be “confirmed” before it can be entered on the PSC register. So, even if the company has all the required information already, it must undertake the confirmation step, which means one of the following:
- The PSC supplies the company with the information;
- The information is provided to the company with the knowledge of the PSC;
- You ask the PSC to confirm the information was correct, and they reply that it is; or
- You hold information confirmed by one of the above means and have no reason to believe it has since changed.
B. Notices to a corporate entity
A notice to a relevant legal entity must require the addressee to:
- State whether or not it is a registrable relevant legal entity
- If so, to confirm or correct certain specified particulars included in the notice, and supply any that are missing
We’ve created a template s. 790D notice to corporate entities that a company can adapt and use as well as a template reply to the notice from the legal entity.
Information about RLEs doesn’t need to be confirmed in the same way as for individuals. However, the details still need to be correct and complete before they’re entered on the PSC register.
C. Notices to others to help identify PSCs
- You know or suspect will know the identity of the PSC; or
- Will know someone who will know them!
This might include intermediaries like solicitors, accountants, financial advisers or bankers known to act for the PSC, their family members, business partners or known associates.
Once again, we’ve produced a template s. 790D notice that you can adapt and use when writing to someone in order to help you identify a PSC or RLE. There’s also a template reply from the third party to the notice.
anyone… you send a notice to must reply within one month of the notice
The process of writing out will in a few cases be iterative. Once you have a reply from someone who knows a PSC or RLE, you’ll most likely need to write to them directly to get them to confirm their details. In some cases, the person you suspected of being a PSC will confirm they aren’t registrable (perhaps because they’re holding shares on behalf of someone else), but will give you contact details of someone else. You’ll then need to serve notice on that individual or legal entity, and so on until you’ve found the right person or identified that no PSC exists.
PSCs, relevant legal entities and anyone else you send a notice to must reply within one month of the notice. Anyone who doesn’t respond within that time commits a criminal offence. Elsewhere, we look at the process a company can follow when someone doesn’t respond to a section 790D notice.
3 Update the company’s PSC register
The PSC register is a living document that must always be kept up to date, even while the company is still completing its investigations. It must never be blank.
Once the company is in possession of the relevant details for an individual PSC or RLE (and, in the case of a PSC, has confirmed them), they should be entered on the register.
An entry in a prescribed form must also be made on the register where:
- The company has not yet completed taking reasonable steps to find out if there is anyone who is a PSC or RLE in respect of the company
- The company knows or has reason to believe that a PSC exists but they have so far been unable to identify them
- The company has identified a PSC but has not yet confirmed their details
- Section 790D notices have been issued which have not been complied with or are complied with late
- The company has no PSCs
Where any of the above statements are no longer applicable, you must enter that fact on the PSC register along with the date on which the statement ceased to be true.
4 Identify any changes to PSCs and keep the PSC register up to date
The information on the PSC register must be kept up to date, and the company will need a process to ensure it acts upon any evidence that there has been a change to PSCs. Failure to keep the information on the PSC register up to date is again a criminal offence.
Changes that will need to be investigated and acted upon include:
- A new PSC or RLE emerging – for example, when someone buys shares and thereby obtains more than 25% of the company’s share capital for the first time
- Changes to the specified details for an existing PSC or RLE – for example, a change in a PSC’s residential address or an RLE’s company name
- The nature of a PSC’s control over the company changes – for example, they move from one shareholding “band” to another by buying or selling shares
- Someone ceasing to be a PSC or RLE – for example, they sell sufficient of their shareholding so they no longer own more than 25% of the company’s shares or voting rights
We’ll explore exactly how the company should process changes, including the notices that must be issued and what needs to be included in the PSC register itself, in another article.
5 File PSC details at Companies House
As well as the PSC register maintained by the company, Companies House will maintain a global register of PSCs that can be publicly inspected.
Most companies will report their PSCs during incorporation or in their first Confirmation Statement. The details of each PSC must be submitted, alongside a history of statements about PSCs (the same ones that have to be included in the register itself) that were true during the year.
Thereafter, any changes to PSCs – new PSCs, changes to existing PSCs, people ceasing to be PSCs and any statements that become true or cease to be true – were until 26 June 2017 reported via the confirmation statement. From 26 June 2017, every change must be reported individually within 14 days via forms PSC01 to PSC09 (or the LLP equivalents).
Inform Direct simplifies each step of keeping a PSC register. Your online PSC register will contain all the prescribed wording, and everything is included in your Confirmation Statement