on Thursday, 19 May 2016.
On occasion, local authorities are not completely familiar with company law and its ramifications.
In this article, we set out some changes which have taken place or which are due to take place, and which every local authority should be familiar with. These changes are not arduous, but the consequences of getting this wrong are severe. So, the advice must be: read, digest and act!
From 6 April 2016, UK companies and limited liability partnerships (LLPs) must (with some very limited exceptions ), maintain a register of people with significant control (PSCs) over their entity. The purpose of these requirements is to help increase transparency over who controls UK companies and LLPs.
From 30 June 2016 the PSC information will become publically available as it will form part of the annual confirmation statement (previously known as the annual return) which is submitted to Companies House. Companies and LLPs need to take steps now to identify their PSCs.
A company or LLP will need to:
The PSC register must never be empty. Prescribed statutory wording must be used to reflect the status of obtaining information about every PSC. A company or LLP which has concluded that it has no PSCs will still be required to maintain a PSC register but will include a statement to that effect in the register.
A local authority which is a PSC must:
Essentially, a PSC is every individual, governmental body, corporation sole and every registrable 'relevant legal entity' (RLE) that directly or indirectly satisfies one or more of the five conditions below in relation to the company or LLP. Broadly a registrable RLE is any UK company incorporated under the Companies Act or a UK LLP, or an overseas company with shares listed on a recognised stock exchange.
The person owns more than 25% of a company's issued shares or, in the case of an LLP, has rights over more than 25% of the surplus assets on a winding up of the LLP
The person holds more than 25% of the voting rights at a members' meeting (whether generally or on particular issues)
The person is able to appoint or remove a majority of the board of directors of a company or, in the case of an LLP, a majority of those members involved in the management of an LLP
and every such person not satisfying one or more of conditions 1 - 3, who nonetheless
Condition 4: has the right to exercise or actually exercises significant influence or control over the company or LLP (see below)
Condition 5: has the right to exercise or actually exercises significant influence or control over a trust or a firm that is not a legal entity, which would satisfy any of conditions 1 - 4 if it were an individual
There is a complex set of rules which applies to identifying PSCs, but as these overlap with the rules relating to local authority controlled companies, it should not be too difficult to for a local authority to identify whether it is the PSC of any company or LLP.
What constitutes significant influence or control is very broad and will depend on each entity's circumstances. Examples of where a local authority has significant influence or control (whether or not exercised) include:
There are some exceptions, albeit a person who may fall within an exception may be a PSC for another reason. The exceptions include:
Failure by companies or LLPs to take steps or to give notices required under the PSC regulations is a criminal offence which is punishable by imprisonment or a fine (or both).
If a local authority as a PSC fails (except with court approval) to comply with a disclosure notice and a warning notice, it risks restrictions being imposed on it. Interests which can be restricted include rights to vote, receiving a dividend or profit share, rights to transfer ownership of the shares or membership interest, as well as related exercisable powers (overriding any provisions in a shareholders' or LLP agreement or in a company's articles of association). These rights can be restricted until the local authority complies with the original disclosure notice.
The Department of Business Innovation & Skills has published statutory and non-statutory guidance on the government's website. This includes guidance for entities which are PSCs, such as local authorities.
Companies and LLPs need to take action now to identify their PSCs and to set up their PSC registers to avoid committing a criminal offence and local authorities should take steps to identify where they are PSCs and to volunteer the information to the relevant companies and LLPs. We can help Local Authorities and their controlled companies and LLP to comply with the new requirements by: