People with Significant Control over companies – the new requirements

What is it?

Many people may not know that the origins of these recent requirements, introduced with effect from 6 April 2016, date back to the Small Business, Enterprise and Employment Act 2015. That Act inserted the requirements as new Part 21A of the Companies Act 2006 and it is therefore not in response to the recent debacle involving the unauthorised disclosure of 11.5m documents from the Panamanian-based law firm Mossack and Fonseca - unless the government had prior information, which seems unlikely given the Prime Minister’s unrehearsed difficulties over his own family’s involvement in an offshore trust.

The new obligations centre on the requirements for companies to keep a register of People with Significant Control over that company. The reforms are primarily aimed at private companies other than a few exceptions such as charities, community interest companies and dormant companies, on the basis than listed companies are already subject to other adequate transparency disclosure obligations.

Affected companies must keep an internal register of individuals who hold, directly or indirectly, more than 25% of its shares, voting rights, or the right to appoint or remove a majority of the directors, or the right to exercise significant control or influence (or who in fact do exercise such control or influence) over the company, whether directly or through others.

What are the obligations?

Companies affected must take reasonable steps to establish if there are any individuals or entities with significant control, in order to put in place a register: they can serve a formal notice on persons they believe may be relevant.

Persons who know or ought reasonably to know that they are registrable must notify the company of their status. If they receive a notice from the company requiring disclosure they must also must provide the information to their company. If they fail or refuse to do so, then the company can issue a restrictions notice, suspending their rights as shareholders, including the right to transfer the shares or to receive dividends.

Once the register is created it cannot simply be left blank. If information is still required, then one or more of the forms of statutory wording must be inserted, indicating the stage that the provision of information is at: for example, whether persons cannot be identified, or whether further information from identified persons is awaited.

For most private companies, the new obligations will not present a problem. It is merely one more statutory register to be completed. But even for such companies, things such as shareholders’ agreements and share options will still need to be considered and reviewed.