On 26 March 2015, the Small Business, Enterprise and Employment Act 2015 received royal assent. One of the new measures which will affect all companies will be the requirement to keep available for inspection a ‘PSC register’. This new register will be a record of ‘people with significant control’ in the company. With this provision due to come into force on 6th April 2016, companies should now begin to take action, if they haven’t done so already, to identify these individuals within their organisations.
Some draft guidance has been recently published as to who falls under this category and how to determine if a person is a ‘person with significant control’ under the new Act.
Who has ‘significant control’?
The draft guidance does not provide an exhaustive statement of what constitutes significant control; however, it does state that a person may hold a right to exercise significant influence or control over a company as a result of a variety of circumstances. These can include the provisions of a company’s constitution, the rights attached to the shares or securities which a person holds, a shareholders’ agreement or some other form of agreement.
The guidance provides a number of examples and includes individuals who meet one or more of the following conditions:
- ownership of more than 25% of a company’s shares;
- control of more than 25% of a company’s voting rights; and
- the right to appoint or remove a majority of the board of company directors.
The following are examples of what would constitute actually exercising ‘significant influence or control’:
- A person involved in the day to day management and direction of the company, for example, a person who is not a director but regularly influences a significant section of the board, or who is regularly consulted on board decisions or whose views influence decisions made by the board; or
- A person whose recommendations are often followed by shareholders which hold the majority of the voting rights in the company when they are deciding how to vote. For example, where a company founder no longer has a significant shareholding in the company they founded, but makes recommendations to the other shareholders on how to vote and their recommendations are generally followed.
The draft guidance also gives some examples of what would not usually result in a person being considered to be exercising significant influence or control for the purposes of the Act. The examples include:
- Providing advice in a professional capacity, for example, a lawyer, an accountant, a management consultant (including a company mentor) or a financial advisor;
- A third party acting under the terms of a commercial or financial agreement, for example, a supplier, a customer, or a lender;
- An employee acting in the course of their employment, including an employee or director of a third party; and
- A director of a company, including, a managing director, a sole director, a non-executive or executive director who holds a casting vote.
It is recommended that all individuals who have a position of responsibility for managing the company are reviewed for the purpose of being included in the PSC register so as to comply with the new measure. Such individuals should be identified as to whether the effect of their relationship places them in a position where they actually exercise significant influence or control for the purpose of the new Act. Companies should bear in mind that as relationships and roles often change overtime, individuals may need to be included in the PSC register at a later date.