February 17, 2022 People with significant control
Who ultimately controls the direction of a company? The first answer to come to mind might be the directors. After all, it is they who will normally set the vision, the strategy and the culture of the organisation. And it is they who are required by the Companies Act 2006 to act in accordance with the company’s constitution and to promote the success of the company.
However, in carrying out those duties directors are doing so for the benefit of the company’s members as a whole. Moreover the Companies Act also requires them to act in the interests of the company’s employees whilst also fostering the company’s business relationships with suppliers, customers and others. They also need to be mindful of the impact of the company’s operations on the community and the environment and ensure they comply with relevant legislation.
What this adds up to is that the board may well be directing day to day operations but their actions are conscribed by their duties in law and by the external influences of multiple parties. It is the need to clarify those external influences which has partly led to the further requirement in law to identify and report on people with significant control (PSCs).
In the majority of instances those PSCs will satisfy one or more of the following conditions:
- hold more than 25% of shares in the company,
- have more than 25% of voting rights in the company,
- have the right to appoint or remove the majority of the board of directors.
In February 2022 Companies House updated their online video which gives examples of how these examples might apply in practice.
There are other instances where a PSC may not hold any shares or voting rights but may still have a significant influence over the company. Instances might include having the right of veto over the company business plan, changing the nature of the company’s business, or influencing borrowing decisions.
Individuals who have significant influence over the voting plans of other shareholders may also be considered to be PSCs. There may also be some instances where an outside ‘trust or firm without legal personality’ such as a partnership or sole trader may be deemed to have significant control. In those cases the trustees/members/partners should all be recorded as PSCs.
The above information relates to companies but the requirement to identify and report on PSCs also applies to Limited Liability Partnerships.