Companies have a duty under the Companies Act 2006 (“CA”) Part 21A Section 790D to take reasonable steps to find and disclose registerable people with significant control of the company (“PSCs”). If a UK company has a simple ownership structure in which one or more individuals hold significant control, then meeting the disclosure requirements is straightforward. However, where a company has a more complex ownership structure, identifying who, if anyone, is a PSC can be challenging. A UK company owned or controlled by foreign entities faces particular challenges.

People with Significant Control

Under CA Part 21A, a UK registered company must register PSCs with the Registrar of Companies for England and Wales (“Companies House”). ‘Significant control’ is defined by CA Schedule 1A Part 1 as:

 1.    Ownership of shares

Condition 1 is that X holds, directly or indirectly, more than 25% of the shares in Y.

 2.    Voting rights

Condition 2 is that X holds, directly or indirectly, more than 25% of the voting rights in Y.

 3.    Right to appoint or remove directors

Condition 3 is that X holds the right, directly or indirectly, to appoint or remove a majority of the board of directors of Y.

 4.    Significant influence or control

Condition 4 is that X has the right to exercise, or actually exercises, significant influence or control over Y.

 5.    Trusts, partnerships, etc
Condition 5 is that—

(a)  the trustees of a trust, or the members of a partnership, unincorporated association or other entity, that is not a legal person under the law by which it is governed meet any of the conditions specified above (in their capacity as such) in relation to Y, and
(b)  X has the right to exercise, or actually exercises, significant influence or control over the activities of that trust or entity.

 This definition applies to individuals, whether based in the UK or elsewhere. Any individual who meets these criteria must be registered as a PSC and their personal information, such as their address, kept up to date.

If a company meets the definition in CA Schedule 1A Part 1, it may also be registerable as a PSC, but only if it is a ‘relevant legal entity’ defined by CA Part 21A Section 790C (“RLE”). A relevant legal entity is any entity ‘subject to its own disclosure requirements’.

A legal entity is ‘subject to its own disclosure requirements’ if it is:

·         itself required to disclose its own PSCs under CA Part 21A;

·         traded on the UK or EU regulated markets;

·         an eligible Scottish partnership within the meaning of regulation 3(2) of the Scottish Partnerships (Register of People with Significant Control) Regulations 2017; or

·         specified by the secretary of state under CA Part 21A Section 790B or 790C.

Most public or private UK companies will be RLEs registerable as PSCs, being either subject to CA Part 21A disclosure requirements themselves or traded on a UK regulated market. Foreign public companies traded on an EU regulated market will also be RLEs, as will certain foreign companies traded on markets specified by the secretary of state. Foreign private companies or companies traded on foreign markets that are not EU or specified are ineligible to be RLEs.

However, with the introduction of the Register of Oversees Entities (“ROE”) in 2022, the question has arisen as to whether a company on the ROE is an RLE for the purposes of registering the PSCs of a UK company. Specifically, is a company on the ROE ‘subject to its own disclosure requirements’ as defined by CA Part 21A Section 790C?

Companies on the Register of Oversees Entities

Following the implementation of the Economic Crime (Transparency and Enforcement) Act 2022 (“ECTEA”), foreign companies that own land in the UK must register their beneficial owners with Companies House.

The ECTEA Schedule 2 Part 2 Section 6 defines a beneficial owner. This definition is identical to that of a PSC of a UK company as defined by CA Schedule 1A Part 1 (above). Companies on the ROE are essentially required to share the same information as UK companies under CA Part 21A, although the ECTEA uses the term ‘beneficial owner’ rather than ‘PSC’.  This might lead to the assumption that a company on the ROE is ‘subject to its own disclosure requirements’ under CA Part 21A, making it an RLE which can be registered as a PSC. However, nothing in CA Part 21A or ECTEA Schedule 2 suggest that this is the case.

 Although the definitions of beneficial owner and PSC are the same, the disclosure requirements under the CA and ECTEA are different. Under CA Part 21A Section 790E, UK companies must update their PSC information within 14 days of change in the status of PSCs. Under ECTEA Section 7, a company on the ROE must update its beneficial ownership information within 14 days after each update period, an update period being 12 months (ECTEA section 7(9)). Therefore, the information regarding the beneficial owner of a company on the ROE may be as much as 12 months out of date, whereas the identification of a UK company’s PSCs must be accurate to within two weeks. The similarities between ECTEA Schedule 2 and CA Part 21A are misleading; there are fundamental differences between the two regulatory regimes.

 
‘Subject to its own Disclosure Requirements’

 To further complicate the matter, the ECTEA sets out a different definition of ‘subject to its own disclosure requirements’ than that in CA Part 21A Section 790C. In identifying whether legal entities can be beneficial owners, the ECTEA states that only a company that is ‘subject to its own disclosure requirements’ may be registered (Schedule 2 Part 1), and ECTEA Schedule 2 Part 3 defines this as:

 7(1) For the purposes of this Schedule a legal entity is “subject to its own disclosure requirements” if—
       
          (a)  Part 21A of the Companies Act 2006 applies to it (whether by virtue of section 790B of that Act or another enactment that extends the application of that Part);

          (b)  it is a company to which section 790C(7)(b) of that Act applies (companies with voting shares traded on UK or EU regulated markets);

         (c)   it is of a description specified in regulations under section 790B(1)(b) or 790C(7)(d) of that Act (or under either of those sections as extended);

         (d)  it is an eligible Scottish partnership within the meaning of regulation 3 of the Scottish Partnerships (Register of People with Significant Control) Regulations 2017 (S.I. 2017/694);

         (e)  it is registered in the register of overseas entities under this Part of this Act; or

         (f)    it is of a description specified by the Secretary of State in regulations under this paragraph.

A company on the ROE is therefore ‘subject to its own disclosure requirements’ for the purposes of the ECTEA Schedule 2 and can be registered as a beneficial owner of another company on the ROE. UK companies that are required to register their PSCs under CA Part 21A are also eligible to be registered as beneficial owners of companies on the ROE.

However, this does not mean that a company on the ROE is ‘subject to its own disclosure requirements’ for the purposes of CA Part 21A. CA Part 21A is clear that there is a narrow definition of ‘subject to its own disclosure requirements’ when defining an RLE. It is not the case that any foreign company which, on examination of their disclosure requirements, appears to have similar regulations to those imposed on UK companies is ‘subject to its own disclosure requirements’ for the purposes of CA Part 21A. The requirements are that a company either be subject to CA Part 21A itself or be exempt by being traded on a UK, EU or other specified regulated market.

A company on the ROE that does not meet the requirements of CA Part 21A will not be ‘subject to its own disclosure requirements’ for the purposes of registration as a PSC, even though it is ‘subject to its own disclosure requirements’ for the purposes of registration as a beneficial owner. It is therefore necessary, when considering whether a company is subject to its own disclosure requirements’, to determine whether this is for the purposes of CA Part 21A or ECTEA Schedule 2.

Beneficial Owners and PSCs

If a foreign company on the ROE has significant control of a UK company, it may not be possible to register this foreign company as a PSC. However, determining the beneficial owner of the foreign company by using the ROE may provide the solution. Due to the similarities between ECTEA Schedule 2 and CA Part 21A, the beneficial owner will have significant control of the foreign company. If the beneficial owner of the foreign company is an individual or an RLE, then this will be a registerable PSC of the UK company.

The introduction of the ECTEA regime has therefore made it easier for the PSCs of UK companies owned or controlled by foreign companies to be identified and registered, but only where those foreign companies are on the ROE and have beneficial owners who can be registered as PSCs. Private foreign companies cannot usually be registered as PSCs, and a foreign company registration on the ROE does not, in itself, mean that it is an RLE that can be registered as a PSC.

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Note: This is a general summary of an evolving field of law, and is made available for general discussion purposes only between CANDEY and its clients and prospective clients. This memorandum does not constitute legal advice and must not be relied on as such. It should also not be cited as legal or academic authority