EXPLAINER: new UK Guidance on identifying Persons with Significant Control (PSCs)

Companies House has issued updated draft guidance to assist businesses to identify who really holds ‘significant influence or control’ in a company for the purposes of the Register of People with Significant Control.

What is a Person with Significant Control?

A Person with Significant Control (PSC), sometimes called a ‘beneficial owner’, is someone who owns or controls a company. All England & Wales Companies are required to identify their PSCs and inform Companies House who they are and which of these conditions they meet. If a company cannot identify its PSC(s), or does not have any, it must also inform Companies House.

A company can have one or more PSCs. A PSC must meet one or more conditions known as the ‘nature of control’, which typically includes an individual or legal entity that:

1. Holds more than 25% shares in a company.
2. Holds more than 25% voting rights in a company.
3. Has the right to appoint or remove a majority of directors.
4. Has the right to exercise “significant influence or control” over the company.
5. Has the right to exercise significant influence or control over the activities of a trust or a firm that meets any of the other specified conditions in relation to the company.

The new draft guidance is intended to clarify the terminology and to provide examples of what might constitute ‘a right to exercise’ significant influence or control – as per conditions 4 and 5 above – or what might not.

Rights that may indicate Significant Influence or Control

The right to exercise significant influence or control is a right which, if exercised, would give rise to the actual exercise of significant influence or control. In the context of a company, a person may hold a right to exercise significant influence or control due to a variety of circumstances, including:

• The provisions of a company’s constitution.
• The rights attached to the shares or securities that a person holds.
• A shareholders’ agreement, some other agreement or otherwise.

Such rights may result in that person being a PSC in relation to the company, regardless of whether they exercise that right.

Condition 4

a. Right to exercise significant influence or control – Company

According to the guidance, the term ‘absolute’ is used in relation to decision rights or a veto to mean that a person can make or veto a decision without reference to or collaboration with anyone else.

1. 1. 1. Absolute Decision Rights
         • Where a person has absolute decision rights over decisions related to the running of the business of the company, such as:
           • Adopting or amending the company’s business plan.
           • Changing the nature of the company’s business.
           • Additional borrowing from lenders.
           • Appointment or removal of chief executive officer (CEO).
           • Setting or altering profit-sharing, bonus or other incentive schemes for directors or employees.
           • Granting options under a share option or other share-based incentive scheme
      2. Absolute Veto Rights
         • Where a person has absolute veto rights over decisions related to the running of the business of the company, such as:
           • Adopting or amending the company’s business plan.
           • Additional borrowing from lenders.

         The guidance states that where absolute veto rights are held for the purposes of protecting minority interests in the company, they are unlikely, on their own, to constitute ‘significant influence or control’ over the company.

         • Where a person holds absolute veto rights over the appointment of the majority of directors, meaning those directors who hold a majority of the voting rights on all or substantially all matters.

b. Actually exercises significant influence or control – Company

According to the guidance, all relationships that a person has with the company or other individuals who have responsibility for managing the company should be taken into account to identify whether the cumulative effect means that they do actually exercise significant influence or control.

For example, a director who also owns important assets (such as intellectual property rights) or has vital relationships that are important to the running of the business and who uses this additional power to influence the outcome of decisions related to the running of the business of the company.

A person would exercise “significant influence or control” if:

• They are significantly involved in the management and direction of the company, such as a non-board member who regularly or consistently directs or influences a significant section of the board, or a person who is regularly consulted on board decisions and whose views influence decisions made by the board. This would include a person who falls within the definition of ‘shadow director’ under section 251 of the Companies Act 2006.
• Their recommendations are always or almost always followed by shareholders who hold the majority of the voting rights in the company, when they are deciding how to vote, such as a company founder who no longer has a significant shareholding in the company.

Condition 5

a. Right to exercise significant influence or control – Trust or Firm

This applies if a person has the right to exercise significant influence or control over the activities of a trust or firm (partnership) that also meets any of the conditions (above) for being a PSC of a company. This would apply regardless of whether the person actually exercises that right.

A person has the right to exercise ‘significant influence or control’ over a trust or firm if that person has the right to direct or influence the running of the activities of the trust or firm, such as the right to:

• Appoint or remove any of the trustees or partners, except through application to the courts or following a breach of fiduciary duty by the trustees.
• Direct the distribution of funds or assets.
• Direct investment decisions of the trust or firm.
• Amend the trust or partnership deed.
• Revoke the trust or terminate the partnership.

b. Actually exercises significant influence or control – Trust or Firm

• A person is likely to exercise significant influence or control over a trust or firm if they are regularly involved in the running of the trust or firm. For example, a person who issues instructions to the trustees or members of the firm that are generally followed. This may be a settlor or beneficiary who is actively involved in directing the activities of the trust.
• A person who controls the management or activities of a limited partnership would be considered a person with significant influence or control over the firm.

Excepted roles with respect to Companies and Trusts or Firms

The guidance provides a non-exhaustive list of roles and relationships that would not, on their own, result in that person being considered to be exercising significant influence or control for the purposes of the fourth or fifth conditions, including:

• Professional lawyers, accountants or advisers
• Lenders or commercial counterparties
• Regulators, liquidators, or employees acting in the course of their employment.
• Directors acting only within the normal scope of their role.

However, if the role of such a person differs significantly from the norm or forms part of a wider pattern of influence, they may still be regarded as a PSC.

Next steps

The draft Companies House Guidance aims to:

• Make PSC identification clearer.
• Reduce ambiguity around significant “influence” and “control”.
• Give companies a practical set of examples to follow.

It reinforces that PSC status isn’t just about shareholdings – power and influence are equally significant.
This Guidance is still in draft and awaits parliamentary approval. If parliament raises no objections within 40 days, the guidance will be formally issued. Until then, the old guidance remains in force.