What Is a PSC (Person with Significant Control) and Why Does It Matter?

What Is a PSC (Person with Significant Control) and Why Does It Matter?

In the world of the UK business landscape, one acronym frequently surfaces and holds significant weight in every company: “PSC.” But what does it mean and why has this seemingly simple abbreviation become crucial for corporate governance and compliance? Understanding the concept of a Person with Significant Control isn’t just about adhering to regulations; it’s about nurturing transparency, dissuading illegal activities, and ensuring the integrity of the UK’s business landscape.

This content aims to demystify the PSC regime, exploring its fundamental principles and shedding light on its profound impact on your business obligations.

Since 2016, the UK government, through Companies House, has placed significant emphasis on identifying and accurately recording individuals who hold substantial influence over companies, a move designed to enhance corporate transparency and actively combat money laundering, terrorist financing, and other illicit financial activities.

Whether you’re a seasoned entrepreneur, a budding start-up founder, or simply navigating the complexities of UK company law, grasping the intricacies of the PSC framework is non-negotiable. Failing to understand or neglecting these obligations can result in severe penalties, including fines and even imprisonment. Therefore, this introduction serves as your essential starting point, preparing you for a deeper dive into the importance of PSCs, how to identify them, and the crucial steps your business must take to remain fully compliant with these vital regulations. By the end of this series, you’ll have a clear understanding of what a PSC entails and why it’s so fundamental to responsible business practice in the UK.

 

Understanding the Basics: What Defines a Person with Significant Control?

So, what is PSC in simple terms? A Person with Significant Control (PSC) is an individual who holds considerable influence or control over a company. This control goes beyond merely being a director or a minor shareholder. The UK’s PSC regime, introduced by the Small Business, Enterprise and Employment Act 2015 and effective from April 2016, outlines five specific conditions that, if met by an individual, designate them as a PSC. Companies must take “reasonable steps” to identify anyone who meets one or more of these conditions.

 

The Five Conditions For Being a PSC are:

• Directly or indirectly holding more than 25% of the shares in the company. This is the most common and often easiest condition to identify, involving a direct ownership stake.
• Directly or indirectly holding more than 25% of the voting rights in the company. Even if shareholding is below 25%, significant voting power can make an individual a PSC.
• Directly or indirectly holding the right to appoint or remove the majority of the board of directors. This condition focuses on control over the company’s strategic decision-makers.
• Having the right to exercise, or exercising, significant influence or control over the company. This is a broader, more subjective condition designed to catch individuals who might exert control without formal shareholdings or voting rights. It can include scenarios where an individual, not on the board, consistently directs or influences a significant proportion of the board’s decisions.
• Having the right to exercise, or exercising, significant influence or control over a trust or firm that itself meets one of the first four conditions. This “look-through” provision prevents individuals from hiding their control behind complex corporate structures or trusts.

Importance of Person Of Significant Control: Why Transparency Matters

The introduction of the PSC register was a breakthrough step towards greater corporate transparency in the UK. Before this, identifying the true beneficial owners of companies could be challenging, facilitating illicit activities such as money laundering, terrorist financing, and tax evasion. The PSC regime aims to peel back these layers of anonymity.

The requirement to identify people of significant control serves several crucial purposes:

• Transparency: By understanding who ultimately controls a company, it simplifies the comprehension of the corporate structure and the identification of potential conflicts of interest.
• Accountability: Identifying people of significant control establishes clear responsibility for a company’s actions.
• Financial Crime: Understanding company control aids in preventing and detecting illegal activities such as money laundering and fraud.

 

Companies House and Persons with Significant Control

Companies House is central to the identification and registration of companies house persons with significant control. All UK companies are legally mandated to maintain a PSC register, which must be kept current and accessible to Companies House upon request. Non-compliance with PSC regulations can lead to penalties and legal repercussions. Therefore, comprehending your obligations regarding Companies House person with significant control is essential.

Criteria for Identifying a Person with Significant Control

Determining who qualifies as a person with significant control involves specific criteria. An individual is generally considered a PSC if they meet one or more of the following conditions:

• Holding, directly or indirectly, more than 25% of the company’s shares.
• Holding, directly or indirectly, more than 25% of the company’s voting rights.
• Having the right, directly or indirectly, to appoint or remove a majority of the company’s board of directors.
• Otherwise, having the right to exercise, or exercising, significant influence or control over the company.
• Having the right to exercise, or exercising, significant influence or control over a trust or firm that meets any of the above conditions. 

Maintaining the PSC Register as a Company
All UK companies must maintain a PSC register, even if there are no people of significant control to report. In the absence of PSCs, the company must declare this. The PSC register must be kept at the company’s registered office or a location where the company’s records are held and must be available for inspection.

Here’s a breakdown of your key obligations:

• Identify Your PSCs: You must take “reasonable steps” to identify anyone who meets the PSC conditions. This involves

1. 1. • By reviewing your company’s records, be it share registers, articles of association, shareholder agreements
      • Issuing notices to potential PSCs and confirming their details

• Record PSC Information: Once identified and confirmed, specific details about each PSC should be recorded on your company’s internal PSC register. This detail includes:

1. 1. • Full name
      • Date of birth (day and month are public, year only if a serious risk is present)
      • Nationality
      • Country/state of residence
      • Service address (for correspondence)
      • Usual residential address (this is NOT publicly disclosed, unless also used as the service address)
      • Date they became a PSC
      • The nature of their control (e.g., holding over 25% of shares, right to appoint directors)

• File with Companies House: The information on your internal PSC register must be filed with Companies House. After which a Confirmation Statement  should be filed to ensure the information is updated with companies house For new companies, this happens during incorporation. If you’re looking to form a new company and ensure all initial PSC requirements are met correctly, consider our UK Company Formation service

• Keep it Up-to-Date (The 14+14 Rule): This is critical. Any changes to PSC information (e.g., a new PSC, a change in their nature of control, or personal details) must be updated on your internal PSC register within 14 days of the change. You then have a further 14 days to notify Companies House of these changes. This “14+14 rule” means you have a total of 28 days to get changes reflected on the public record.

• Confirmation Statement: While the PSC register is updated dynamically, your company, still need to confirm the accuracy of all company information, including PSC details, when you file for the annual Confirmation Statement  with Companies House.

Penalties for Non-Compliance

Failure to adhere to PSC regulations can result in severe consequences. Companies that do not maintain an accurate PSC register may face huge penalties, including fines. Furthermore, company directors may be held liable for non-compliance. Prioritising PSC compliance is essential to mitigate these risks.

Note that Companies House has been granted enhanced powers under the Economic Crime and Corporate Transparency Act 2023 to enforce these regulations. Penalties can include:

• Fines: Failure to maintain a register, identify PSCs, provide accurate information, or report changes promptly can result in substantial financial penalties. These fines can range from hundreds to thousands of pounds, with increased penalties for repeated non-compliance.

• Criminal Charges: Failure to provide accurate PSC information or deliberate withholding of such information constitutes a criminal offence, punishable by prosecution and potential imprisonment for a term of up to two years.

• Disqualification: Directors and other officers who repeatedly fail to comply with their PSC obligations may face disqualification from acting as a director.

• Reputational Damage: Failure to comply can significantly harm a company’s reputation, undermining confidence among investors, lenders, and the wider public.

• Restrictions on Shares/Rights: In the event of non-compliance, Companies House or the company may impose restrictions on a PSC’s shares or rights, effectively limiting their ability to benefit from those interests.

 

 

Case Study: Ensuring PSC Compliance in a Growing Tech Company

Let’s consider a case study of a growing tech company, Tech Innovators Ltd., which faced challenges in maintaining PSC compliance. As the company expanded, it attracted multiple investors, each holding significant shares and voting rights.
The complexity of identifying and recording all people of significant control became apparent.

Tech Innovators Ltd. took the following steps to ensure compliance:

• Accurate Identification: The company conducted a thorough review of its ownership and control structure. This involved examining shareholding patterns, voting rights, and the influence of various stakeholders.

• Maintaining an Up-to-date Register: Tech Innovators Ltd. established a robust system to keep its PSC register current. Any changes in control were promptly recorded, ensuring the register was always accurate.

• Regular Reviews: Periodic reviews of the PSC register were conducted to verify the accuracy of the information. This proactive approach helped in identifying any discrepancies early.

• Professional Guidance: The company sought advice from legal and compliance experts to navigate the complexities of PSC regulations. This ensured that all legal requirements were met, and the company remained compliant.

By implementing these measures, Tech Innovators Ltd. successfully maintained its PSC register, avoided penalties, and fostered transparency and accountability within the organisation.

 

Common Mistakes in PSC Compliance

Despite the importance of PSC compliance, many companies make common mistakes that can lead to penalties and legal issues. Here are some of the most frequent pitfalls:

• Inadequate Training and Awareness: Personnel responsible for maintaining the PSC register may lack sufficient training and understanding of PSC regulations. This can result in errors in identifying or recording individuals, especially in complex ownership structures involving trusts or overseas entities.

• Ignoring Indirect Interests: Companies often overlook indirect interests when identifying PSCs. It’s crucial to trace the chain of ownership up to the individual or entity that holds significant control.

• Failure to Update the Register Promptly: Changes in ownership or control must be reflected in the PSC register within 14 days of awareness. Delays in updating the register can lead to non-compliance.

• Misunderstanding Foreign Entities: Foreign entities can be relevant legal entities (RLEs) if they have voting shares listed on certain regulated markets. Companies should not dismiss foreign entities without a proper assessment.

• Overlooking Significant Influence or Control: Condition four of the PSC requirements states that an individual will be a PSC if they have the right to exercise, or actually exercise, significant influence or control over the entity. This condition is often overlooked.

How to Ensure PSC Compliance

To ensure your company fulfils its obligations regarding persons with significant control, consider these steps:

• Accurate Identification: Meticulously assess your company’s ownership and control structure to identify all PSCs accurately.

• Up-to-date Register: Maintain a current PSC register and update it promptly following any changes in control.

• Regular Review: Conduct periodic reviews of your PSC register to ensure ongoing accuracy and compliance.

• Professional Guidance: If you have any uncertainty about PSC compliance, seek advice from our expert company formation agents in the UK for comprehensive guidance.

 

Embracing Transparency for a Stronger Business Future
Now we know what is PSC, as it plays a vital role in shaping a company’s direction. By staying informed and grasping the concept of PSC, companies can contribute to a fair and trustworthy UK business environment.

If you are unsure about any aspect of your PSC obligations, seeking professional advice is always recommended to ensure full compliance.

Our team at Company Formation Agent UK are well-versed in all aspects of UK company compliance and can provide the expert support you need.

File your PSC register details with Companies House. We can help!

• New Companies: We’ll handle PSC compliance during incorporation.
• Existing Companies: We’ll file changes and updates to keep your register accurate.
• Our Services: UK Company Formation and PSC compliance support.

 

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