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Goodbye Annual Returns – and hello to transparency?

The familiar Annual Return for companies was replaced by the Confirmation Statement with effect from 30 June thus year. This is linked to the requirement on companies to maintain a register of Persons with Significant Control (PSC) which commenced on 6 April this year and now to provide that information with the Confirmation Statement.

One of the disadvantages of company law hitherto has been that, since transfers of shares are not registered at Companies House, the membership and shareholdings of a company were only reflected in the Annual Return. The Annual Return simply gave a snapshot on the relevant day. So the identity of shareholders and their holdings could be rendered out of date the following day.

The only remedy was to serve notice on a company requesting a copy of the register of members. Such an application requires payment of a fee, disclosure of the purpose of the request and also details of any persons to whom the information is to be divulged.  An application could be blocked or at least delayed by the company applying to the court. Inaccuracies in the information provided by a company is punishable by a fine which is currently upto £1,000. So it is easy to see that the owners of some companies may view it as a risk worth taking in order to conceal the true ownership of their company -  especially since the searcher may be unaware of the deficient information and therefore fail to make a complaint.

The new law requires up to date information to be provide on incorporation and for any changes to be maintained by the company and for that information to be sent to Companies House with the Confirmation Statement.

Who is on the PSC Register?

Persons who –

  • hold directly or indirectly 25% or more of the shares or voting rights;
  • have the right to appoint a majority of the directors;
  • can otherwise exercise significant control or influence;
  • have similar rights in a trust or partnership which holds shares or voting rights or which can exercise significant control or influence in a company.

Who must provide the information?

There is an obligation on the company to find out who the PSCs are and also an obligation on shareholders etc. to notify the company.

When must information be provided?

A company has an ongoing obligation to update the register. If it is uncertain about who are the PSCs or their details, then it must send a notice to them, or to those it suspects of being PSCs, as soon as reasonably practicable. A recipient has one month to respond. If no response is received by then, the company must mark its register to that effect.

What if the information is not provided?

Failure by a company to maintain a register of PSCs or to provide the information to Companies House is a criminal offence for which the company and its officers can be held liable. APSCwho fails or refuses to provide information also commits a criminal offence. 

Additionally, the company can serve a restriction notice which suspends some or all  the rights of the shareholder, including the rights to vote, receive dividends, or to sell or transfer the interest, until the information has been provided.

In order to prevent a company from being stuck with a shareholder who refuses to provide information, the company can apply to the court for consent to sell the interest.

Is that it?

No. The main aim is to improve transparency of ownership and reduce money-laundering. So the government will be likely to monitor how this new regime plays out and then take further steps. The power to make further regulations governing the delivery of required information and additional matters is already reserved under section 790M and 853J of the Companies Act.

If you would like to speak to someone regarding any of the above please contact Guy Lachlan, our resident Corporate/Commercial Solicitor on 0800 083 0815 or via the contact form on our website.