3 February 2016

Do you have 'significant control'?

As part of a European transparency drive, Parliament has approved legislation requiring all public and private companies to maintain a publicly available register of people who have 'significant influence or control' over them.

Whilst final details of the relevant rules and guidance are currently only in draft form, it is clear that non-compliance is not an option, with both individuals and companies facing criminal sanctions for failing to maintain such a register. In addition a 'restrictions notice' can be applied, preventing the transfer of shares or the receipt of dividends.

What is perhaps more difficult to specify is how to identify a 'Person of Significant Control' (PSC). Some straightforward definitions include someone who holds over 25% of shares (either directly or indirectly); someone who has the power to appoint or remove the majority of the Board; and more generally, someone with 'significant influence or control' over the company.

Control in this context means someone who directs its policies and activities. Significant influence is slightly different and includes those not necessarily involved in the day to day running of the business, but can still ensure that the company adopts the policies or activities that they wish adopted. The definition is not limited solely to financial or operational activities, nor to situations where the person concerned stands to benefit economically.

Obvious places to look to establish who in your company is a PSC include the Mem and Arts or other constitutional documents, shareholder agreements and definitions of rights attached to shares. Any veto rights will be good evidence that the holder of the veto is a PSC. Of course, especially in SMEs, there may be little such documentation, and it may be more of a question of what is happening in practice. Ultimately, the reasonableness test will be applied: that is, what would a reasonable person do if in possession of the relevant information.

Companies have until the 6 April to draw up such a Register, and members should start to consider how to draw together the available evidence and complete a documented process by which it is decided who should declare themselves a Person of Significant Control.