In a time when KYC (Know Your Customer) and due diligence checks are becoming ever more the norm, a company’s PSC (person with significant control) records may come increasingly under scrutiny from interested third parties. In this article, we provide a recap of the basic PSC rules for your company.

Who is a PSC? Shares, Voting Rights and Appointing the Board

A PSC is an individual who meets any of the following basic criteria:

• They hold more than 25% of shares
• They hold more than 25% of voting rights
• They hold the right to appoint or remove the majority of the Board: This is generally assumed to be the case for anyone holding over 50% of voting rights

The individual PSC is registered under each of the three categories where they meet the minimum threshold. These ‘conditions of control’ are then broken down into bandings depending on the percentage of shares and voting rights held by the PSC:

• More than 25% but not more than 50% of shares/voting rights
• More than 50% but less than 75% of shares/voting rights
• 75% or more of shares/voting rights

When reviewing the company’s PSC records, it is important to consider any special provisions in the company’s Articles of Association, the share class rights attached to different share classes and whether the company has any non-voting share classes. It should also be noted that the % of shares held is by reference to a share’s nominal value – so this should be considered where there is more than one share class (eg 1p ordinary and £1 preference shares).

Scenario 1:

In this example, Ms Smith would be a PSC holding 75% or more of shares and voting rights, and holding the right to appoint the Board. Mr Jones would not be registrable as a PSC as he does not meet the minimum criteria.

Scenario 2:

In this example, both Ms Smith and Mr Jones would be registrable as PSCs. They both hold more than 25% but not more than 50% of shares and voting rights. As neither individual holds more than 50% of voting rights, they are not registrable as holding the right to appoint the Board.

PSCs with ‘Significant Influence or Control’

Even if a person does not meet any of the basic criteria as above, they may still be registrable as a PSC if they are considered to exercise (or have the right to exercise) significant influence or control over the company.

The statutory guidance isn’t exhaustive, but in practice a PSC with significant influence or control might be someone who:

• has absolute decision rights or veto rights over decisions relating to the running of the business of the company
• is involved in the day to day management of the company where they are not a member of the board (or even a shareholder)
• whose recommendations are always or almost always followed by the shareholders who hold the majority of the voting rights in the company, when they are deciding how to vote.

Common examples might include a family figurehead or company founder.

When the shareholder is a company

A corporate shareholder may be registrable as an RLE (relevant legal entity) if:

• it meets the basic criteria as above (holding more than 25% of shares and/or voting rights, holding the right to appoint or remove the majority of the board)
• it is required to hold its own PSC records (eg. Another UK registered company or LLP)

The RLE would be registered in the PSC records if it is the first registrable entity in your company’s ownership structure.

Scenario 3:

In this example, Smith Holdings (UK) Ltd is registrable as an RLE as it is based in the UK and retains its own PSC records. It would be registered as holding 75% or more of shares and voting rights, and holding the right to appoint the Board. Mr Jones would not be registrable as a PSC as he does not meet the minimum criteria.

When the shareholder is an overseas company

Generally, overseas companies cannot usually be registered as RLEs as they do not hold their own PSC records (unless they are listed on a market in the UK/EEA or on a ‘specified’ market in the USA, Israel, Switzerland or Japan).

When an overseas company holds shares in your company, it is necessary to ‘look up’ the ownership chain to identify anyone holding a ‘majority stake’ in the overseas company (typically, anyone holding more than 50% of voting shares).

The ‘majority stakeholder’ would then be registered as a PSC ‘representing’ the overseas corporate shareholder.

Scenario 4:

In this example, Smith Holdings (International) would not be registrable as an RLE, as it is based overseas. Instead, Ms Smith (as the holder of over 50% voting shares in Smith Holdings (International)) would be registrable as a PSC representing the overseas company – so in the category holding 75% or more of shares and voting rights, and holding the right to appoint the Board. Mr Jones would not be registrable as a PSC as he does not meet the minimum criteria.

When the shareholder is a trust

If a trust would meet the basic criteria, any registrable PSCs in respect of that trust need to be identified.

You should consider the trustees of the trust together anyone who exercises (or has the right to exercise) significant influence or control over the trust.

The rules around PSCs and trust can be complex – please do contact us for further advice.

Whilst this article provides a review of the basic rules concerning company PSC records, we know that every company is different. If you wish to discuss your company’s PSC records, please contact us today.