Published: 16th March 2016

LLPs and Register of Persons with Significant Control

Limited Liability Partnerships (LLPs) are required to register Persons with Significant Control (PSC) from 6th April 2016. This will bring LLPs in line with the requirement for companies.

Pursuant to the draft Limited Liability Partnerships (Register of People with Significant Control) Regulations 2016 published on 25 January 2016 (the “Regulations”), the UK’s new requirement for companies to keep registers of “persons with significant control” is to be extended to limited liability partnerships.

Background

Companies are required to maintain a register of Persons with Significant Control from 6th April 2016. In addition, companies must make an annual filing to Companies House to report whether it has any PSCs.

From 06 April 2016, LLPs will also need to prepare and maintain a PSC register. They will also have to make an annual filing at Companies House to report whether it has any PSCs.

The information on PSCs for both companies and LLPs will be available to the public.

Person with Significant Control

A Person with Significant Control is a natural person (ie, an individual person), who meets any of the following conditions:

  1. they directly or indirectly hold rights over more than 25% of the surplus assets on a winding up of the LLP
  2. they directly or indirectly hold more than 25% of the voting rights in the LLP (note that this relates to votes at meetings of the members as opposed to, for example, votes held for the purposes of meetings of a committee of the LLP)
  3. they directly or indirectly hold the right to appoint or remove the majority of those involved in management of the LLP
  4. they have the right to exercise, or actually exercise, significant influence or control, or
  5. they otherwise have the right to exercise, or actually exercise, significant influence or control over the activities of a trust or firm which, whilst not a legal entity, would itself satisfy any of the conditions set out in (1) to (4) above if it were an individual.

It may be fairly simple to determine whether a person is a PSC under conditions (1) to (3) above. However, determining whether a person is a PSC under conditions (4) and (5) may not be so straightforward.

The statutory guidance sets out a list of examples where a person may have significant influence or control. The list of examples is not exhaustive. It includes examples where the person;

  1. is likely (or more likely than not) to receive more than 25% of the profits of an LLP, including profits allocated automatically or otherwise
  2. has absolute decision rights over decisions relating to the running of the business of the LLP, for example relating to:
  • amending the LLP agreement
  • adopting or amending the LLP’s business plan
  • changing the nature of the LLP’s business
  • making any additional borrowing from lenders
  • establishing or amending any financial incentive scheme, or
  • holds absolute veto rights over decisions relating to the running of the business of the LLP, for example relating to:
  • amending the LLP agreement
  • adopting or amending the LLP’s business plan, or
  • making any additional borrowing from lenders (except as a minority protection).

The right to veto certain fundamental matters for the purposes of protecting their own or a minority interest in the LLP, is unlikely to constitute “significant influence or control” over the LLP.

Examples of where a member of an LLP might not be treated as having significant influence or control in these circumstances include where it is protecting its minority interest by exercising a veto in relation to:

  • amending the LLP agreement
  • any matter which would dilute its interest in the LLP (including through the admission of new members)
  • any requirement to contribute additional capital to the LLP
  • making any additional borrowing from lenders, outside previously agreed lending thresholds, or
  • winding up the LLP.

The Department for Business, Innovation & Skills has published final, non-statutory guidance for companies and LLPs in respect of the PSC register requirements.

Relevant Legal Entities and the PSC register

A legal entity must be placed on the PSC register if it is both relevant and registrable.

A legal entity will be “relevant” if it would have met any of conditions (1) to (5) if it were an individual, and:

  • it is required to hold its own PSC register
  • it is subject to Chapter 5 of the FCA’s Disclosure and Transparency Rules, or
  • it has voting shares admitted to trading on a regulated market in the UK or elsewhere in the EEA or on specified markets in Switzerland, the USA, Japan or Israel.

A relevant legal entity (RLE) will be “registrable” in relation to an LLP if it is the first RLE in the LLP’s ownership or control chain.

By way of example, if an LLP has a member which is a limited company, and that limited company would have met one or more of conditions (1) to (5) and it is required to maintain its own PSC register, then it will be an RLE in relation to the LLP.

In these circumstances, the LLP’s PSC register should only include certain prescribed information in relation to that RLE – it should not include any information in relation to any shareholder in that RLE, or in relation to any individual or entity that has control over that RLE, as such individuals and/or entities will appear on the PSC register of the RLE itself.

Indirect Control

LLPs must “look through” their structures in order to identify and disclose individuals or entities that have indirect control over the LLP.

An example of where an LLP will be required to consider its ownership structure for such purposes is where an entity has significant control over the LLP, but is not an RLE because that entity is a non-UK company and therefore not required to keep its own PSC register.

In these circumstances, the LLP must look at the ownership and control of such an entity (Entity X) to identify any individuals or RLEs who have a “majority stake” in Entity X.

A person or entity will have a “majority stake” in Entity X if:

  • they hold a majority of the voting rights in Entity X
  • they are a member of Entity X and have the right to appoint or remove a majority of its board of directors
  • they are a member of Entity X and control a majority of the voting rights by agreement with other shareholders or members, or
  • they have the right to exercise or actually exercise dominant influence or control over Entity X.

An individual or RLE with a majority stake in Entity X must be entered on the LLP’s PSC register. If there is another legal entity which is not an RLE but which has a majority stake in Entity X, the LLP must look at the ownership and control of that legal entity (and so on) until an individual or an RLE with a majority stake is identified. If it is established that no such individual or RLE exists, then this must be entered on the PSC register.

Excepted roles

The draft statutory guidance sets out a list of roles and relationships that would not, on their own, result in a person being considered as exercising significant influence or control over an LLP. The list is not exhaustive.

Generally, the list extends to third party advisers and service providers. However, it also provides that the role carried out by a member as a designated member is an “excepted role” and that any person who is a director, employee or CEO of a third party (for example, a corporate member of an LLP) will not, solely by virtue of such capacity, be treated as having significant influence or control over the LLP.

PSC register information

The PSC register must contain each PSC’s name, service address, residential address, nationality, date of birth, date of becoming a PSC and the nature of control.

For RLEs, the LLP’s PSC register must contain the name of the entity, its registered office, its legal form, the law by which it is governed, the register in which it appears (for example, the UK Companies House register), the entity’s registered number, the date when it became a registrable RLE and the nature of its control.

From 30 June 2016, the same information will also need to be included in the LLP’s Confirmation Statement filed at Companies House. However, in order to prevent identity fraud, the public register will not show a PSC’s residential address or the day on which the PSC was born (only the month and year).

The wording the LLP should use when setting out the nature of a PSC’s or an RLE’s control in its PSC register is set out in Schedule 2 of the Regulations.

If a person is a PSC or an RLE by virtue of:-

  • conditions (1) or (2), the PSC register must state whether the PSC’s or the RLE’s rights to surplus assets on a winding up or voting rights (as applicable) are above 25% but below 50%, above 50% but below 75%, or above 75% –
  • condition (3), the PSC register must state that the person holds the right, directly or indirectly, to appoint or remove a majority of the persons who are entitled to take part in the management of the LLP, or –
  • condition (4), the PSC register need simply state that the person has the right to exercise, or actually exercises, significant influence or control over the LLP, without any requirement to provide further information as to why that PSC or RLE has met the condition.

In respect of condition (5), the required statement must first provide if the condition applies to a person who has the right to exercise, or actually exercises, significant influence or control over the activities of a trust or a firm. It should then separately set out the wording required in order to identify the trust’s or the firm’s control over the LLP (using the same wording applicable in identifying which of conditions (1) to (4) apply to a PSC or an RLE, as referred to above).

The PSC register must set out all of the conditions which a PSC or an RLE satisfies, save that if one or more of conditions (1) to (3) is met, then there is no requirement to include any reference to condition (4).

Location of PSC Register

The default position is that an up-to-date PSC register must be kept at the LLP’s registered address and LLPs must file an annual Confirmation Statement at Companies House.

Responsibility for gathering PSC information

The LLP is principally responsible for gathering information. The LLP must take reasonable steps to determine whether any individuals or legal entities meet the conditions set out in the Regulations and then obtain the details needed to complete the PSC register. Whilst the non-statutory guidance sets out a number of steps which should typically be taken, they are not definitive or exhaustive. Ultimately therefore “reasonable steps” will depend on the specific fact pattern and the LLP should consider what a reasonable person would do in the same circumstances with the same knowledge.

Where it is not clear if an individual or entity is a PSC or an RLE, or if the LLP requires further information regarding a prospective PSC or RLE in order to confirm their status, the LLP must issue information request notices to those individuals or entities. A recipient of such a notice from the LLP has one month to comply with the request for information after which point the LLP may issue a warning notice. Failure to respond to a warning notice within a further month allows the LLP to issue a restrictions notice (effectively “suspending” a member’s interest in the LLP).

In addition, there is also a disclosure obligation imposed by the Regulations on PSCs and RLEs. Individuals or entities that become PSCs or RLEs, and remain so for one month but do not receive an information request notice from the LLP, are under an obligation to inform the LLP of their status themselves and have a further month (ie two months from the date of becoming a PSC) to do so.

Access to the register

As long as they have a “proper purpose”, any member of the public (whether an individual or an organisation) can request access to the up-to-date PSC register held at the LLP’s registered address.

The request must be in writing and set out the name of the applicant (or, if an organisation, the name of the responsible individual), their address and the purpose in seeking access. The LLP must provide access for free, although a fee can be charged where a copy of the register is requested. The LLP has five business days to either comply or apply to the court on the basis that it does not believe that the request was made for a “proper purpose”.

The guidance states that ‘proper purpose’ is intended to have a wide interpretation and application, so presumably the courts will only prevent an applicant from having access to an LLP’s PSC register in very limited circumstances.

Any member of the public can access the information included in the LLP’s Confirmation Statement filed at Companies House. This will only be a snapshot of the LLP’s PSC position on the day the Confirmation Statement is filed (unless the LLP elects to maintain its PSC register at Companies House).

Failure to comply

Failure to comply with the PSC register requirements is a criminal offence and can result in sanctions for both the LLP and its members. This can include a fine for the LLP, fines and/or imprisonment for the Designated Member(s) and sanction against other individuals.

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