Schedule 1A: References to people with significant control over a company
489.Paragraph 2 of Schedule 3 inserts Schedule 1A to CA 2006. Schedule 1A sets out what is meant by references to people with significant control over a company and to their holding an interest in the company through another legal entity.
490.Section 790C(2) provides that a person with significant control over a company is an individual (“X”) who meets one or more of the “specified conditions” in relation to the company (“company Y”). The specified conditions are set out in Part 1 of Schedule 1A (“The specified conditions”). Part 2 specifies what is meant by holding an interest in a company, including through a relevant legal entity, for the purposes of Part 21A of the Companies Act 2006. Part 3 of Schedule 1A sets out rules for the interpretation of the Schedule (“Supplementary provision”).
Part 1: The specified conditions
Ownership of shares
491.The first condition is that X holds, directly or indirectly, more than 25% of the shares in company Y (paragraph 2)
Ownership of voting rights
492.The second condition is that X holds, directly or indirectly, more than 25% of the voting rights in company Y (paragraph 3).
Ownership of right to appoint or remove directors
493.The third condition is that X holds the right, directly or indirectly, to appoint or remove a majority of company Y’s directors (paragraph 4).
Significant influence or control
494.The fourth condition is that X has the right to exercise, or actually exercises, significant influence or control over company Y (paragraph 5).
495.This provision will capture individuals who exercise control other than through the first, second or third conditions. ‘Significant influence or control’ is intended to capture individuals with a level of control broadly equivalent to those with an interest in more than 25% of the company’s shares or voting rights.
496.In deciding whether a person has significant influence or control, a person must have regard to guidance about its meaning (paragraph 24). That guidance will be subject to the negative resolution procedure
Trusts, partnerships etc.
497.The fifth condition is that the trustees of a trust or the members of a firm (as defined in section 1173(1) CA 2006) that is not a legal person meet one or more of the other specified conditions (or would do if they were individuals) and that X has the right to exercise, or actually exercises, significant influence or control over the activities of that trust or firm (paragraph 6).
498.The purpose of this condition is to ensure that where an individual (or individuals) other than the trustees or members of the firm has significant influence or control over the activities of the trust or firm, that individual is also identified as a PSC.
Part 2: Holding an interest in a company etc
499.Part 2 of Schedule 1A enables a person (“V”) to work out when they hold an interest in a company (“W”) and when that interest is regarded as being held through a relevant legal entity. This allows the person to identify whether they are a registrable or non-registrable person, based on the specified conditions in Part 1 of the Schedule.
500.The grounds on which a person is regarded as holding an interest in a company (paragraph 8) are linked to the five specified conditions. Interests are regarded as being held through a legal entity under paragraph 9 by reference to paragraph 18.
Part 3: Supplementary provision
Joint interests
501.Shares or rights in a company may be held jointly. For example, in the case of a partnership, the partners may hold the shares jointly and indivisibly. In the case of shares held in trust, the trustees will hold the shares jointly.
502.In such cases, each person is treated for the purpose of this Schedule as holding the shares or right in their own right (paragraph 11). For example, if A and B have a joint interest in 26% of the shares in company Y, each of them will be a registrable person in respect of Y by virtue of each holding 26% of Y’s shares.
Joint arrangements
503.Shares or rights in a company may also be subject to joint arrangements between persons, where those persons agree to act jointly in respect of the shares or rights in question. Paragraph 12 provides that in such cases, each person is treated for the purpose of this Schedule as holding the combined shares or rights of both of them. For example, if A and B each hold 20% of shares in company Y and have made a joint arrangement, each of them will be a registrable person in respect of Y by virtue of holding 40% of Y’s shares.
504.“Arrangement” is defined in paragraph 21. Paragraph 12(2) provides that a “joint arrangement” is an arrangement between the holders of shares or rights that they will exercise all or substantially all their respective rights together, as pre-determined by the arrangement in question. In such cases, all parties to the arrangement are registrable persons or RLEs.
Calculating shareholdings
505.Paragraph 13 sets out the way shareholdings are to be calculated, including where a legal entity does not have a share capital. All shares issued by the company, as set out in the company’s statement of capital, are to be factored in to the calculation.
Voting rights
506.Paragraph 14 sets out the way voting rights are to be calculated, including in legal entities which do not have, or are not required by law to have, general meetings where matters are decided by the exercise of voting rights.
507.When calculating the percentage of voting rights held for the purpose of this Schedule, any voting rights held by the entity itself in treasury should not be included when calculating the total voting rights in the entity (paragraph 15).
Rights to appoint or remove members of the board
508.Paragraph 16 clarifies that the third condition relates to directors holding a majority of the voting rights on all or substantially all matters.
509.This provision is intended to capture scenarios which would give the holder of the right a level of control over the company broadly equivalent to holding more than 25% of the shares or voting rights. It reflects similar provision elsewhere in CA 2006 (see section 1162(2)(b), in relation to parent and subsidiary undertakings) and in the Financial Services and Markets Act 2000 (FSMA) (see section 89J(4)(b), in relation to the power of competent authority to call for information). Those provisions equally seek to define what is meant by one party having control over another.
510.If an entity does not have a board of directors, references are to be read as references to the equivalent management body of the entity (paragraph 17).
Shares or rights held “indirectly”
511.Paragraph 18 sets out what is meant by shares or rights held indirectly.
512.A person holds shares in company Y indirectly if they have a majority stake in a legal entity and that entity holds the shares in question (paragraph 18(1)(a)).
513.If that legal entity is part of a chain of legal entities, a person will hold the shares indirectly if each entity in the chain has a majority stake in the entity immediately below it in the chain, and the last entity in the chain holds the shares in question (paragraph 18(1)(b)).
514.A person has a right “indirectly” if they have a majority stake in a legal entity and that entity has the right in question (paragraph 18(2)(a)).
515.If that legal entity is part of a chain of legal entities, a person will exercise the right indirectly if each entity in the chain has a majority stake in the entity immediately below it in the chain, and the last entity in the chain has the right in question (paragraph 18(2)(b)).
516.“Majority stake” is defined in paragraph 18(3) by reference to voting rights, dominant influence or control, and the right to appoint or remove directors. It reflects provision made in section 89J(4) FSMA, which describes how one person may have control over another.
517.The majority stake allows the person to control the legal entity in question. The person can then, by extension, control – for example - the way in which the legal entity votes its shares in company Y. Without a majority stake in the legal entity, the person will not normally have sufficient control to do this in respect of company Y. He or she cannot therefore be said to have significant control over company Y. In a chain of entities, this level of control needs to be reflected at each point in the chain in order that the person can be said to indirectly hold the shares or rights in company Y. Reference to share ownership alone is not included in the definition of “majority stake” as without control of voting rights it would not give a person the requisite amount of control in a chain structure.
518.Paragraph 18(4) provides that for the purpose of this paragraph, a legal entity is treated as having the right to appoint a director if a person is appointed as director of company Y as a result of being appointed director of the legal entity; or if the legal entity is the director of company Y.
Shares held by nominees
519.Paragraph 19 provides that where a share is held by a nominee on behalf of a person, the share is treated as held by that person for the purpose of this Schedule. This means that person – and not the nominee – will be entered in the PSC register where the relevant specified condition is met by the nominee.
Rights treated as held by a person who controls their exercise
520.Similarly to paragraph 19, paragraph 20 provides that where a person controls a right, the right is treated as held by that person for the purpose of this Schedule. This means that the controller of the right – and not the holder, unless they are also a controller - will be entered in the PSC register where the relevant specified condition is met.
521.Paragraph 20(2) sets out when a person has control of a right. This is by reference to an arrangement between a person and others.
522.The definition of “arrangement” in paragraph 21 is broad, but provides that there must be a degree of stability about the arrangement. The intention is to exclude one-off actions or decisions which would not equate to ‘significant control’.
Rights exercisable only in certain circumstances etc.
523.Some rights in a company are only exercisable in certain circumstances. Paragraph 22 provides that for the purpose of determining whether a person has significant control, such rights should only be taken into account when the circumstances have arisen and for as long as they continue to exist; or when the circumstances are within the person’s control.
524.This provision intends to ensure that only ‘live’ interests in the company are entered in the PSC register. It is based on similar provision made in Schedules 6 (‘Meaning of “subsidiary” etc: supplementary provisions’) and 7 (‘Parent and subsidiary undertakings: supplementary provisions’) to CA 2006.
525.The exception to this is in the case of an administration. Paragraph 22(2) specifies that the rights of administrators and creditors during relevant insolvency proceedings should not be taken into account for the purpose of the PSC register. The control exercised in such circumstances is not considered relevant for entry in the PSC register due to the exceptional nature of the circumstances and its limited duration. “Relevant insolvency proceedings” are defined in sub-paragraph (3).
526.Paragraph 22(4) clarifies that rights temporarily incapable of exercise – for example, because they have been suspended – should continue to be taken into account.
Rights attached to shares by way of security
527.Where shares are provided by a person as security, the rights attached to those shares are to be treated in this Schedule as belonging to that person (paragraph 23). This is provided that the rights are only exercisable in accordance with that person’s instructions and in that person’s interests (with the exception of the right to preserve or realise the value of the security).
528.This provision is based on similar provision made in Schedules 6 (‘Meaning of “subsidiary” etc: supplementary provisions’) and 7 (‘Parent and subsidiary undertakings: supplementary provisions’) to CA 2006.
Limited partnerships
529.Where a limited partnership is deemed to hold shares or rights in a company, the limited partners will hold those shares or rights jointly and will meet the specified conditions accordingly (see paragraph 11).
530.Limited partners in limited partnerships registered under the Limited Partnerships Act 1907 will not however normally be involved in the management of the partnership business (see section 6(1) of that Act). They do not therefore have control over the company in the same way as other holders of shares or rights. Similar considerations apply in relation to particulars in certain overseas arrangements.
531.Paragraph 25 accordingly provides that an individual does not meet the first, second or third specified condition (see above) by virtue only a being a limited partner, unless they are involved in the management of the partnership business (see definition of “limited partner” in sub-paragraph (4)) or a foreign limited partner (see definition of “foreign limited partner” in sub-paragraph (5)).
532.Similarly, sub-paragraph (2) provides that individuals who directly or indirectly hold shares or rights in relation to a limited partner are not considered to meet the first, second or third specified condition by virtue only of that interest.
533.Sub-paragraphs (1) and (2) do not apply in relation to identifying whether a firm meets the specified condition in paragraph 6(a).
534.Sub-paragraph (5) defines “foreign limited partner” by reference to regulations made under the power in sub-paragraph (6). This power allows the Secretary of State to prescribe the characteristics of non-UK arrangements in regulations subject to the affirmative resolution procedure.
Part 3: Power to amend thresholds etc.
535.Paragraph 26 gives the Secretary of State the power to amend Schedule 1A for a permitted purpose. This power would be exercised by regulations made under the affirmative resolution procedure.
536.The permitted purposes are to increase or decrease the 25% threshold; change or add to the specified conditions in Part 1; and change or add to Part 2 in consequence of changes made to Part 1. Part 1 may only be amended to include circumstances that give individuals a level of control over company Y broadly similar to the other specified conditions.
537.The threshold may need to be amended to react to changing circumstances and on-going monitoring and review. Part 1 may need to be amended to ensure that Schedule 1A adequately covers scenarios involving, for example, more complex corporate structures – particularly as new corporate structures develop or individuals seek new ways to evade the disclosure requirements.
