Corporate

It depends.

Read on to find out more

Potted history

The PSC regime was introduced by the UK government in April 2016. The aim is to increase transparency about who ultimately owns and controls UK companies.

Under the PSC regime, UK companies are required to:

  • find out if they have any PSCs;
  • maintain a register of PSCs; and
  • provide information about their PSC position to Companies House (where it is publicly available)

What is a PSC?

A PSC (“person with significant control”) is someone who meets one or more of the following conditions in relation to a company:

Condition 1: directly or indirectly owns more than 25% of the shares;

Condition 2:  directly or indirectly holds more than 25% of the voting rights;

Condition 3:  directly or indirectly holds the right to appoint or remove the majority of directors;

Condition 4:  otherwise has the right to exercise, or actually exercises, significant influence or control.

There’s a fifth condition about trusts and partnerships which I’m not going to cover in this blog.

If a person fulfils one or more of the first three conditions, it is not necessary to consider whether they also fulfil the fourth (or fifth) conditions.

(But a company would still need to consider whether there was anyone else who met the fourth or fifth conditions.)

I’m a director – can I also be a PSC?

Yes – if you meet any of the above conditions.

For example:

  • Jack is the sole director/ shareholder of his company. 

He would be a PSC meeting the first three conditions.

  • Jack and Jill are directors and equal shareholders of their companies. 

They are both PSCs as they meet the first two conditions.   (Whether or not either or both of them meets the third condition would depend on their company’s constitution, and any other agreement between them.)

As directors, wouldn’t Jack and Jill automatically be PSCs – because they’d exercise significant influence or control over their company (the fourth condition)?

That’s a natural assumption.  But, counter-intuitively, it’s not correct.

The first thing to remember is that, if a person meets any of the first three conditions, it’s not necessary to consider whether they meet the remaining conditions.

So in the examples I gave above, you wouldn’t need to go further and ask whether Jack or Jill exercised significant influence or control (the fourth condition).

But let’s take another example.

  • Jack and Jill are directors of a company.  Jack is the managing director.  Each of them holds 20% of the shares.  The remaining shares are held by their elderly father who resigned from the board a few years ago. 

Neither Jack nor Jill meets any of the first three PSC conditions.

So the company must ask whether Jack or Jill has the right to exercise, or actually exercises, significant influence or control over the company.

There is guidance from the UK government that must be considered.

According to that guidance, if a person is a director of a company that will not, on its own, result in them meeting the fourth condition.

This includes where the person is:

  • a managing director;
  • a sole director; or
  • a non-executive or executive director who holds a casting vote.

So, on the face of it, neither Jack nor Jill is a PSC.

Is that the end of the PSC enquiries that you’d have to make in relation to a director?

No.

When considering whether a director meets the fourth PSC condition, all relationships that they have with the company (or other individuals with responsibility for managing the company) must be taken into account.

The government guidance says that the company must identify whether the cumulative effect of those relationships places the director in a position where they actually exercise significant influence or control.

Let’s revisit our example above.

  • Jack has developed some software that is essential to the company’s business and licenses it to the company.  As a result, Jill will tend to agree with whatever Jack proposes in relation to the running of the company’s business.  She doesn’t want to jeopardise the company’s future by challenging Jack in case he terminates the software licence.

In this situation, Jack has additional power over and above that which he would normally have as a director.

His directorship, combined with the additional influence he wields as a result of his software ownership, would result in him meeting the fourth PSC condition.  He actually exercises significant influence or control.

Conclusions

  • Directors may well be PSCs of a company – but that is more likely to be because of the level of their shareholding or voting rights.
  • Directors do not, by virtue of their role, automatically meet the fourth PSC condition (having the right to exercise, or actually exercising, significant influence or control over the company).
  • However, all relationships that the director has with the company must be analysed before reaching a final conclusion on this.

Next steps

Part of Companies House’s current business plan includes contacting companies where it believes they have misunderstood the PSC requirements.

When the PSC regime first came into force, a number of companies registered all their directors as PSCs on the natural, but mistaken, assumption that these individuals met the fourth PSC condition.

Company directors should check the PSC filings that they have made through the Companies House website and ensure that these are correct and up to date.

The Brodies corporate team is experienced in advising on all aspects of the PSC regime. For further information and advice, please get in touch with your usual Brodies contact.

Fiona Beal

Practice Development Lawyer at Brodies LLP
Fiona is a practice development lawyer in Brodies' corporate team. She provides support and knowledge management services in the field of company and corporate law including management of the department styles and know-how bank
Fiona Beal