The PSC register and its intricate web of rules for who actually are the Person(s) of Significant Control for some companies can be confusing. A lot of time can be wasted information gathering between our team, our clients and their clients as we try and drill down the correct information to be registered. We have spent many hours poring over the 117-page guidance notes from Companies House to better advice our clients right from the start of a company formation process.

One particular rule that is worth addressing and alerting you too when gathering information is the correct PSC to register when an offshore company meet one of the PSC criteria;

• It holds over 25% of the share capital
• It has voting rights for the company
• It has the right to appoint and remove directors (ordinarily anyone holding over 50% of the share capital)

If the offshore company is deemed a PSC by meeting at least one of the aforementioned conditions it needs to consider a different PSC reporting than for a UK company.

We would recommend that a further check should be done to see if the offshore company itself has any individuals or companies have a majority stake in the company, as they are required to be registered as the PSC NOT the offshore company itself. We have outlined below Companies House guidance on this rule.

Guidance from Companies House – Indirect Ownership

The shares and rights in a company might be held indirectly when someone has a majority stake in the legal entity that meets the PSC criteria.

For companies registered in the UK (including LLP’s and Scottish partnerships and SE’s) that person is not required to be entered on the PSC register unless the legal entity they hold their interest through is not a RLE. This is the case for the following:

A legal entity might not be an RLE because:

1. It is a UK legal entity which is not a company, LLP, eligible Scottish partnership or SE; or
2. It is a non-UK company

Instead, you must look at the ownership and control of that legal entity to identify any individuals or RLEs who have a majority stake in that legal entity. Someone will hold a majority stake if:

• They hold a majority of the voting rights in the legal entity > 50%
• They are a member of the legal entity and have the right to appoint or remove a majority of its board of directors;
• They are a member of the legal entity and control a majority of the voting rights by agreement with other shareholders or members

See the chart to compare the PSC for each company A, B, and C when companies are UK companies compared to the final diagram when there are overseas companies in the ownership structure.

Figure: the correct PSC for Company A, B and C with UK companies compared to overseas companies

Paragraph 18 of Part 3 (of Schedule 1A of the Companies Act 2006) sets out the rules for interpreting how someone ‘indirectly’ holds shares or voting rights under PSC conditions 1 (share capital) and 2 (voting rights).

Additionally, paragraphs 7.4.5 to 7.4.9 inclusive and Figure 7 (pages 36 and 37) of Companies House guidance sets this out. To download the full 117-page guidance notes click here.

Community Interest Companies (CICs) were introduced in 2005 in the UK to provide a flexible corporate structure for social enterprises, which are increasingly playing an empowering role for local communities and disadvantaged areas. Like a charity a CIC must be primarily aimed at benefiting the community rather than the members or employees, however, unlike charities, it is able to deliver returns to shareholders in the form of dividends albeit subject to certain restrictions.

The nature of those CICs in existence varies widely as social enterprises tackle a wide range of social and environmental issues and there are very few restrictions on the purpose a CIC can have. We have formed CICs with a wide range of purposes, for example, community arts projects, pre-schools, inspiring women in society, helping the homeless, community cafes, rehabilitation of offenders, environmental improvement, fair trade etc.

Incorporating a CIC

A CIC has the same characteristics as a standard limited company i.e. legal personality, can be limited by either shares or guarantee, directors can be paid or unpaid and members are governed in the same manner. The main difference is that the CIC and its officers are under a stronger obligation to think more specifically about the community it serves and include any stakeholders in its activities.

The formation procedure for a CIC takes slightly longer than normal because papers have to be submitted to Companies House who then pass them to the Regulator of CICs for approval and a Community Interest Statement must be prepared giving a clear outline of the company’s purpose and proposed activities.

The Asset Lock

In order to retain the assets, CICs are subject to an ‘asset lock’, which means that assets must be retained by the CIC and used in support of its activities or in any other manner which may benefit the community. CICs are not able to transfer assets at less than market value unless the transfer meets set criteria and the payment of dividends, subject to its articles, is capped limiting the amount payable.

Converting a limited company to a CIC

Limited companies may convert to a CIC in accordance with the Companies (Audit, Investigations and Community Enterprise) Act 2004 and the Community Interest Company Regulations 2005.

Resolutions effecting the alterations to the company’s current Articles of Association must be passed and filed with the Regulator together with a Community Interest Statement and declarations that the company will not be an excluded company or a charity. The Regulator has set out various draft constitutions which may be adopted. Alternatively modifications can be made to the Company’s current constitution.

The Community Interest Company will exist from the date of the certificate issued by the Registrar of Companies. Conversion to CIC status does not affect the made up date of the annual return or accounts. A CIC Annual Report will be required for the accounting period in which conversion is made.

Do you need help incorporating or converting your existing company to CIC status?

Formations Direct has over 10 years’ experience in dealing with CICs and we can assist with the preparation and filling of all documents with the Registrar to ensure a speedy and hassle-free end result.

If you would like more information about CICs and to contact us, please click here.