By Gurpreet Manku, Director of Technical & Regulatory Affairs at the BVCA
In the final days of the last Parliament, the Small Business, Enterprise and Employment Act 2015 (the "Act") received Royal Assent. The Act implements a number of measures that were first announced in 2013 as part of the Government’s drive to enhance transparency and trust in UK business. In a bid to improve accountability and highlight who really stands behind a company from a control and ownership perspective, the Government committed to introduce a register and confirmed its intention to make it public. The Act implements the requirement to identify people with significant control over a UK company ("PSCs") and file this information publicly at Companies House.
The BVCA has been reviewing the impact of this initiative on the private equity and venture capital industry since 2013 and engaged with the Department of Business, Innovation and Skills ("BIS") throughout the consultation process.
Companies will need to assess whether an individual, directly or indirectly, meets one or more of the specified conditions set out in the Act (included within Schedule 3). There are five specified conditions and in summary, an individual becomes a PSC of a company if they, directly or indirectly, hold more than 25% of the company’s shares or voting rights, or control the majority of its board, or have the right to exercise, or actually exercise, significant influence or control over the company. The Government will publish guidance on the meaning of "significant influence or control" in the context of the PSC register, and the application of the new rules to private equity and venture capital owned companies will require further, and potentially complex, analysis.
As the legislation was making its way through Parliament, representations were made to ensure the specificities of the industry were recognised, and a significant amendment was secured on the application of the rules for companies invested in by funds structured as limited partnerships without a separate legal personality (such as English limited partnerships). Without the amendment there was a risk that where shares or rights are deemed to be held ‘jointly’ by individual limited partners, this might cause all of them to be disclosed on the PSC register, irrespective of their economic interest or voting rights. The Act now includes a power for the Government to extend the amendment for English limited partnerships to non-UK limited partnerships without a legal personality, and we will be working with the Government to design appropriate regulations pursuant to that power. This means that individuals who are limited partners will not be disclosed simply because they invested in a certain type of fund vehicle, and disclosure will depend on the facts and circumstances.
The Act has a limited timeframe for implementation and is split into two phases:
- January 2016: Companies will need to be in a position to keep their own PSC registers.
- April 2016: From this date, companies will need to file PSC information on the public register.
The guidance referred to above is expected to be published this month and following this, companies will have a few months to comply with the requirements. The Government has also confirmed that UK limited liability partnerships will be required to maintain PSC registers (and make them public) and these changes are expected to be implemented via secondary legislation. There are exemptions from the requirements for companies with securities listed on a regulated market subject to equivalent requirements or those companies that comply with the Financial Conduct Authority’s Disclosure and Transparency Rules.
BIS is consulting on the disclosure requirements for the PSC register. These will be similar to the requirements for directors and BIS is looking at the level of detail to be disclosed on how individuals have become a PSC. PSCs will need to provide Companies House with information including their name, service address, nationality, date of birth and usual residential address but some of this information falls within the protection regime such as the full date of birth and residential address. BIS is also looking at other exemptions for people at risk of serious harm.
UK companies will need to take reasonable steps to identify PSCs and will be able to impose restrictions on shares where PSCs are not forthcoming with information. The PSCs themselves will also have the obligation to disclose relevant information to companies. Failing to comply with the requirements is a criminal offence.
The private equity industry has already taken significant steps to encourage transparency, as demonstrated by the publication of the Sir David Walker’s Guidelines for Disclosure and Transparency in Private Equity. We will continue to work with the Government as it implements its transparency measures to ensure they are proportionate and clear for UK companies.
You can read the other articles from Ipes' Private Equity update (edition 18) at the following links: