Corporate holders / group companies - "Relevant Legal Entities" (or "RLEs")
A PSC is by definition an individual, but legal entities may also appear in the PSC Register if they are both "relevant" (i.e. they satisfy the criteria for a Relevant Legal Entity (or RLE)) and "registrable" (see below). The concept of an RLE is key to understanding who appears in the PSC records of a particular company or LLP or ESP.
A legal entity will be a "Relevant Legal Entity" if:
- it is capable of satisfying one or more of the PSC Conditions; and
- it is subject to the PSC regime; or
- it has voting shares listed on a regulated market in an EEA State (including the Official List of the London Stock Exchange) or on certain markets in Israel, Japan, Switzerland or the US.
Typically, unlisted companies incorporated overseas will not be RLEs. Note, however, that the "majority stake" concept for indirect holdings relies on there being a chain of "legal entities", and this term includes both UK companies and overseas legal entities, whether or not they satisfy the RLE definition.
In scenario 1 above, Company B (assuming it is an unlisted UK company) will be an RLE in relation to Company A since it satisfies Condition 1 (and possibly also Conditions 2 and 3) and is required by the Companies Act 2006 to maintain its own PSC Register.
Having identified a PSC or RLE, either direct or indirect, you then need to consider if they are registrable in relation to a particular company, LLP or ESP. The Act distinguishes between "registrable" and "non-registrable" PSCs and RLEs in order to avoid multiple registrations.
So, where there is a chain of ownership and one or more of the entities in the chain are RLEs, only the first RLE in the chain above a company, LLP or ESP will be registrable in relation to it. Any RLEs further up the chain will not be registrable in relation to the underlying company, LLP or ESP. This is illustrated in Scenario 2 below.
Indirect PSCs - who is registrable in relation to the underlying company?
In Scenario 2 above, it was assumed that Company C was a UK company subject to the PSC regime, so it would be a registrable RLE for Company A. Therefore, although P3 is a PSC of Company A, he is not registrable for Company A as he holds his interest indirectly through a registrable RLE.
If both Company C and Company D were unlisted overseas companies, and therefore not RLEs, P3 would become a registrable PSC for Company A on a look-through basis because he holds a majority stake in Company D, which in turn holds a majority stake in Company C, which in turn owns a significant interest in Company A.
If the chain was broken because Company D held only 40% of the voting rights in Company C (i.e. not a majority stake) and did not otherwise exercise, or have the right to exercise, a dominant influence over Company C, then P3 would cease to be a PSC for Company A. Whether or not P3 would then be identifiable via Company C or Company D would depend on the transparency rules applicable in the territories in which Companies C and D were incorporated.
EU jurisdictions were required to implement similar regimes under the beneficial owner register obligations in MLD4, which had an implementation deadline of 26 June 2017. Non-EU territories may have different transparency regimes.
If shares or rights in a portfolio company are held by a nominee company on behalf of an English limited partnership (an "ELP"), you should treat them as if they were held by that ELP. However, in most cases an ELP itself will not be capable of being an RLE in relation to an underlying portfolio company4.
Due to an exemption for limited partners, a limited partner will not satisfy any of Conditions 1 to 3 solely by virtue of an interest that it holds as a limited partner in an ELP. In the ordinary course, it would therefore be unlikely for a limited partner to be a PSC or an RLE of an underlying portfolio company. This analysis also applies to limited partnerships established in other jurisdictions (other than ESPs), whether or not they have legal personality.
The UK general partner and/or manager of an ELP will usually be registrable as an RLE of any UK portfolio company or LLP in which the LP holds a 25%+ stake. A non-UK general partner and/or manager will not be registrable, but you will need to look above the general partner and/or manager to establish whether there are any RLEs or PSCs further up the ownership chain.
Where there are ESPs in an investment structure (for example, where used as carried interest vehicles), the PSC analysis carried out by private equity firms prior to 26 June 2017 should have been reassessed in the light of the 2017 Regulations, and PSC Registers and filings should have been updated as necessary.
In most existing structures, where an ESP sits above a company or LLP, it is simply a case of replacing the existing PSC/RLE in the register with the ESP, as the ESP itself is now capable of being a registrable RLE. The ESP will also need to file its own PSC information at Companies House, meaning that it will need to take steps to identify its own PSCs/RLEs (whether direct or indirect), the criteria for which are outlined above. For a Scottish limited partnership, it is likely that a UK general partner and/or manager will be a registrable RLE. The limited partners in the Scottish limited Partnership are unlikely to be PSCs/RLEs due to the exemption for limited partners described above, which also applies to limited partners of Scottish limited Partnerships, notwithstanding that a Scottish limited partnership has legal personality.
In many cases, no single individual connected with the private equity firm will have significant control over the firm or its portfolio companies. However, appropriate analysis will need to be undertaken with regard to the statutory guidance. This is ultimately a matter of fact.
Duty to identify PSCs / RLEs
Companies, LLPs and ESPs must take "reasonable steps" (see box – "What does "reasonable steps" mean?") to find out who has relevant interests in their shares, by serving notice on anyone they know or have reasonable cause to believe is a registrable PSC or RLE in relation to the company, LLP or ESP, asking them to confirm the nature of their interest (a "PSC notice"). Companies and LLPs refer to such notices as "section 790D notices", whereas ESPs under the Scottish partnerships regime will refer to "regulation 10 notices". The company, LLP or ESP can also make enquiries of anyone else it suspects may know the identity of a PSC or RLE.
Registrable PSCs and RLEs themselves will have a parallel obligation to notify the relevant company, LLP or ESP of their interest within one month of acquiring it if they have not, during that time, received a PSC notice from the company, LLP or ESP. They must also update the company, LLP or ESP if the nature of their interest changes.
What does "reasonable steps" mean?
Maintaining PSC information
When a new company, LLP or ESP is first registered, it must file a "statement of initial significant control" at Companies House. As noted above, companies and LLPs are also required to maintain their own PSC Register6, which must be written up within 14 days after the relevant information has been confirmed by the relevant PSC (or in the case of an RLE, within 14 days of the company or LLP having all the relevant details – RLEs are not required to confirm their details).
Previously, companies and LLPs were required to keep their own PSC Register up to date, but PSC information only had to be filed at Companies House upon incorporation and then with each annual confirmation statement. Under the 2017 Regulations, any changes must be filed with Companies House within 14 days after a company or LLP updates its own register. If, prior to 26 June 2017, a company or LLP had recorded change(s) in its PSC Register which had not been filed at Companies House (for example, where such change(s) had occurred since the date of its last annual confirmation statement) the 2017 Regulations gave such a company or LLP 14 days from 26 June 2017 to file details of that change.
As noted previously, ESPs are not required to maintain their own PSC Register (reflecting the fact that there is no general legal requirement for partnerships to keep statutory books). Instead, they must register their PSC information at Companies House, and must update the information within 14 days of the change being confirmed by the relevant PSC (or in the case of RLEs, 14 days from when the ESP has all relevant details). In order to file PSC information at Companies House, ESPs first need to be registered with Companies House. Scottish limited partnerships will already be registered as registration is a pre-condition of becoming a limited partnership, but this is a new requirement for other ESPs. All other ESPs have 14 days from becoming Scottish qualifying partnership or 14 days from 24 July 2017 if already in existence, to register with Companies House.
For those seeking PSC information on a company or an LLP, the company or LLP's own PSC Register will usually be more up to date than the version at Companies House. If the company or LLP does not keep its own PSC Register, the Companies House version should be up to date, but in either case, the company or LLP can be asked to confirm whether any entries are pending. The RLE concept also means that it may be necessary to inspect the PSC information of several different companies/LLPs/ESPs in order to identify the ultimate owner(s) of a company, LLP or ESP in the chain of ownership.
Content of the PSC Register and the Protection Regime
The Register of People with Significant Control Regulations 2016 (as amended) prescribe the scope of the disclosures required to be made in the PSC Register of companies and LLPs (see below). They also set out a protection regime, whereby the residential address of all PSCs will be kept by the company, LLP or ESP, but will not be disclosed to the public except to specified public authorities and credit reference agencies. Individuals who can establish that they are at serious risk of violence or intimidation can apply to Companies House to prevent their PSC information appearing on the public register.
A PSC Register must never be blank, so companies and LLPs with no PSCs must note that fact in their PSC Register, and where a company or LLP is aware that the PSC Register is incomplete, because for example it is still investigating its PSCs, it must note the status of its investigations into its PSCs. This information must also be filed with Companies House within 14 days of it being entered into the PSC Register. Similarly, ESPs (who are not required to maintain a PSC Register) must ensure that an appropriate statement is filed with Companies House.
Content of the PSC Register: