4: Companies, charities and the new PSC register – a pointless burden for charities?
As tends to be customary just before Christmas, a flurry of Government documents has been published in the last few days. Last week, the Government published its response to a consultation held in June on the register of people with significant control (PSC). Earlier this week, long-awaited draft guidance on the PSC regime was published for comment for a shockingly short time-frame until 11 January 2016 – only 3 weeks over the Christmas and New Year break, hardly the model of transparency which the regime is supposed to champion.
This is all part of the implementation process for a new transparency regime, introduced under the Small Business Enterprise and Employment Act 2015, which will add a new (and complex) requirement into the Companies Act 2006 for companies (unless exempted) to maintain a register of their PSCs.
The Government impact assessment on the costs and benefits of making a company’s PSC register publicly available, published alongside the Government response, states the policy objective as, “The PSC register will implement the UK’s 2013 G8 commitment to ensure that UK companies obtain and hold adequate, accurate and current information on their beneficial ownership and provide this to a central registry; and the commitment to make this information publicly accessible …”.
The Government is bringing in the requirement for companies to keep a PSC register from 6 April 2016 and the requirement to update the information at Companies House from 30 June 2016. This means that new companies incorporated on or after 30 June 2016 will need, as part of the incorporation application, to include a statement of their PSCs. Existing companies at that date will need to complete the information when they complete their “confirmation statement” at Companies House, which replaces the current annual return.
There are some exceptions to the regime – very broadly, companies traded on certain regulated or specified markets – on the basis that they are already subject to transparency requirements. Otherwise, the regime applies to all UK companies, including dormant companies, companies limited by shares, companies limited by guarantee and community interest companies. It also applies, with some adjustments, to LLPs.
The regime can have serious consequences as it is riddled with criminal offences, which can apply not only to the company concerned and its officers, but also to those who might be served with notices to provide information on those individuals or legal entities (known as “relevant legal entitles” or RLEs) which are registrable under the regime. Such notices may be served on those who advise or provide services to such persons – lawyers, accountants, banks and trust and company service providers – as well as family members or business associates.
PSC Guidance – for very brief consultation until 11 January
The regime is fearfully complicated. It is perhaps fortunate then that a raft of draft guidance was published earlier this week. As noted above, ironically for draft guidance designed for a “transparency” regime the drafts have not been released via the gov.uk website and are open for comment only for an extraordinarily short time until 11 January 2016.
Released so far are the following:
- Draft non-statutory guidance for companies and LLP on PSCs (61 pages).
- Draft statutory guidance on the meaning of “significant influence or control” – essential to 2 of the 5 conditions which can make someone a PSC (8 pages).
- Draft summary guidance on PSCs (5 pages).
- Draft statutory guidance on the meaning of “significant influence or control” in relation to LLPs (8 pages).
Still to come (but presumably not to be consulted upon) are:
- BIS Guidance for PSCs (likely to be published in January); and
- Companies House guidance on the incorporation and filing process for the regime.
An administrative headache?
Given the complexity of the regime, the guidance seems, at first blush, to be quite readable; the problem is with the regime itself. For many companies, the process should be straightforward, but for others it looks as if it may well cause an administrative headache, with an initial investigation exercise to identify and obtain and confirm the relevant details of their PSCs and RLEs and an ongoing process of updating the PSC register (which can never be empty), all on pain of potential criminal sanction.
Updating the PSC register will not necessarily be straightforward – the “quick reference guide” in Annex 2 to the draft non-statutory guidance document contains 34 different possible outcomes to be entered in the register depending upon where the company is in its investigations.
Public details about PSCs
Those whose details are entered in the register of PSCs will have information about themselves available to the public from the Companies House register, namely: their name; the month and year of their birth; their nationality; their country/area of residence; their service address; the date they became a PSC; and the condition(s) which cause them to qualify as a PSC.
Note that, as the information at Companies House will only need to be updated once a year, the information above could be up to a year out of date.
In addition, anyone with a “proper purpose” (which is to be interpreted against the background that this is a measure designed for transparency) can review the company’s PSC register, which will also include the PSCs’ residential address and full dob.
Companies will also need to consider the data protection aspects of entering PSC data in their register. For example, the draft guidance suggests that a company may treat PSC information as “confirmed”, and hence publishable on the PSC register and at Companies House, if “the PSC supplied your company with the information”. However, it is not clear that a company would necessarily have permission to process such information/data in this way, if the data was provided to the company for a different purpose.
As things stand, all charitable companies limited by guarantee (and those limited exceptions which are limited by shares) and all wholly-owned trading companies of charities will be subject to the regime.
This is unnecessary – as noted above, the regime is designed to reveal the “beneficial owners” of companies, a concept which does not sit well with charities, which are not “owned” but exist to further their purposes.
An initial analysis suggests that the impact of the regime for charities and their subsidiary companies will be somewhat random, because of the different legal forms charities can take. So, for example:
- One of the criteria for being a PSC is holding, directly or indirectly, more than 25% of the voting rights in the company. This means that a charitable company limited by guarantee (CLG) established with its directors also being the members will have to list its directors/members as PSCs if it has 3 directors/members, but will have no PSCs if it has 4 of more directors/members.
- For wholly-owned trading companies, if wholly-owned by a charitable CLG, then the trading company’s PSC register will only need to give details of the CLG (as it will have its own PSC register).
- However, the guidance provides at present that, where a charitable trust has a wholly owned trading company, the PSCs of that company will be all the trustees of the charitable trust, meaning that the trading company’s PSC register details will need to be updated every time the trustees of the charitable trust change. (This seems to be the case even if the trusteeship has been incorporated by the Charity Commission under Part 12 Charities Act 2011, a jurisdiction introduced precisely to avoid such unnecessary administration).
- Where the trading company is wholly-owned by a CIO, Royal Charter corporation, a statutory corporation or an unincorporated association, there is an argument that the trading company will have no PSCs (or registrable RLEs), although there is room to argue that all the charity trustees are caught, as for a charitable trust.
A pointless burden for charities?
The Government’s drive towards transparency is understandable. However, it does not excuse sweeping charities, seemingly unthinkingly, up in the wake of the regime. The imposition of the PSC regime for charities will tell interested parties nothing relevant about how a charity is run – that information (e.g. its charity trustees, its accounts) is available publicly already.
The Government is due to lay regulations for the PSC regime before Parliament in January 2016. The Government still has time to make proper provision for charities and their trading companies – but will the Government do so?
It seems that we are stuck with this regime. There will be a fair amount of getting up to speed to do in the next few months before the provisions start to come into force in April. In the meantime, there is very little time in which to review the draft guidance and comment before the 11 January deadline.
23 December 2015