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.

A large number of “Challenger Banks” have emerged taking advantage of the post Credit Crunch shake up in banking regulations. The FinTech world has been in a frenzy of activity to establish new banking applications, software platforms, “smart” payment cards and mobile banks, whilst the existing big four (Lloyds, Barclays, RBS and HSBC) have spent time grappling with creaking IT systems and a string of mis-selling scandals.

The government are looking at challenger banks to drive greater competition in Britain’s business banking marketplace. As part of its state aid settlement, Royal Bank of Scotland’s Incentivised Switching Scheme will see £700 Million of grants handed to challenger banks to help them increase their market share and promote their services to small business owners.

A string of digital business banking start-ups like Tide and Cashplus have been making their presence felt with their current account services. Analysts say entrepreneurs are opting for these new digital options as their modern IT systems mean they can open accounts speedily. Tide’s quickest account opening time is two minutes and 14 seconds, a stark contrast with Lloyds or Barclays, which can take weeks handling paperwork.

Tide says it now gets one in twelve new business current accounts opened in the UK. It has passed 35,000 customers and served £1 billion of transactions.

But a digital current account is not suited to every business as they have no way to deposit cash or cheques, which means any trader that accepts cash needs another deposit facility.

Price comparison sites show that challengers typically offer the cheapest mortgages and highest interest rates to savers. Oak North, another new bank specialises in business loans to buy-to-let property management companies and property developers and this year is on course to lend a total of £1 billion.  Again, part of its attraction is the speed with which it can make a decision on a loan.

Latest deals for Oak North include a £10 million loan to developers for a four-storey apartment building project in Hackney and a £20 million loan to Brasserie Bar, the French brasserie business inspired by Raymond Blanc, so that it can develop 24 new sites.

Tide is now available when you form a company online with a £40 cash back offer

What is Tide?

Tide is an alternative ‘bank’ account aimed at small businesses, freelancers, and independents. We usually refer to these accounts as being card-based due to the way they work, but in the case of Tide, mobile first, or app-based might be more correct.

In true challenger bank style, the Tide account is based around a smartphone app. And while other popular alternative business accounts also enjoy banking apps they aren’t necessarily as central to their proposition. You won’t find any traditional online banking, costly customer service numbers, or frustrating login procedures. The account is run and managed solely within the app. Customer service also comes via the app, though you can of course email too if needed.

Payments to and from the account can be made immediately, but direct debits can take a few days to setup. Unlike some other card-based accounts, there are no split pools. The money in your account, is in your account. There’s no need to split funds between the account and the card, they are one and the same.

How much does it cost?

Here’s the real boon. The Tide account costs just 20p per transaction. That’s it. Well almost it. There’s a £1 ATM fee, but that’s all.  No monthly cover charges, no hidden fees, just 20p per transaction, and not even on all transactions. If you can receive payments via BACS rather than Faster Payments, then there’s no fee at all.

How will EPC April changes affect the Property market?

From April 2018 there were some important changes made to the minimum EPC rating requirements for rental properties in the UK. Any property rented out in the private rented sector must have a minimum energy performance rating of E on an Energy Performance Certificate (EPC).

This new rating will be based on C02 emissions for commercial and residential properties. This is the EPC graph displayed on the first page of the commercial energy efficiency certificate.

Landlords are required to commission an assessment of their rental property every 10 years, if it continues to be rented out beyond the 10-year mark. A civil penalty will be imposed for breaches.

For most landlords this will mean that they will no longer be able to rent out a property with a rating of F or G after April 1^st 2018.

Who is affected?

Both residential and commercial property in the Private Rental Sector (PRS) will be affected by these EPC changes. Thus, whether a landlord is letting out a commercial property or an apartment to a tenant, it could be unlawful to do so if the property does not meet the new MEES (Minimum Energy Efficiency Standards)

What is MEES?

MEES (Minimum Energy Efficiency Standards) standards were introduced not only to ensure that tenants live or work in an energy efficient building, but also to move few steps closer to UK’s targets of reducing C02 emissions for all buildings. In order to grant new tenancies or leases on residential or commercial properties with an energy performance certificate (EPC) rating below E, will be unlawful, unless the property is registered as an exemption. A failure to meet this will result in the fine up to £5,000.

How to improve your property energy rating?

In order for homeowners to improve their EPC rating above E they should:

• Make sure any cavity walls are filled with insulation materials, such as foam or beads
• Replace an old boiler for a newer, more efficient model
• Ensure the loft insulation is at least 270mm deep to keep the heat inside the property

What will happen if energy rating is below E?

Local authorities will be responsible for ensuring that properties have a minimum energy rating of E. If they conclude that the property performs below this standard, they may issue a fine and stop the Landlord from renting the property.

Exemptions to the legislation change are:

• The improvement works will devalue the property by 5% or more
• The landlord cannot get consent to carry out the works either from the tenant, mortgage lender or superior landlord
• If the landlord cannot afford to carry out any improvement works
• If the relevant improvement works have been carried out but the energy rating remains under a rating of E

How companies can return value to their shareholders

Where a company has accumulated significant distributable reserves, it may desire to return some of this value to its shareholders. This may be to reduce a cash surplus or to return value to the shareholders before a company sale. There are various methods available to make such a distribution and, below, we consider the key mechanisms that can be employed as well as considering the advantages and disadvantages of each method. For more detailed information, please contact us and ask to speak to our Company Secretarial department.

Cash Dividend

This is the most straightforward method of returning value to shareholders. Subject to any limitations and prohibitions set out in the company’s articles of association, cash dividends may be paid as final and/or interim dividend. Where the company’s articles are silent about the amount of dividend and the payment mechanism, the declaration and payment of dividend are governed by the Companies Act 2006 and common law. Before a company can lawfully pay any type of dividend, it must have sufficient distributable profits.

Non-cash Dividend (Distribution in Specie)

Dividends can also be satisfied by the transfer of non-cash assets. This kind of dividend known as dividend in specie, or dividend in kind, operates in such a way that a dividend of a specified amount is declared but the payment of the dividend is satisfied by the transfer of a non-cash asset of equivalent value to its shareholders. An example could be shares held in another company, property, or machinery. To declare a non-cash dividend, the company’s articles must contain an express authority to do so, and the company must have positive distributable reserves. Where a company identifies a non-cash asset that it wishes to transfer to a shareholder or sister company at below market value (for example, as part of an intra-group reorganisation), the transfer is known as a distribution in specie but there is no requirement to declare a dividend.

Share Buyback (Purchase of Own Shares)

A share buyback is useful for when a shareholder is seeking an exit and it provides the flexibility of allowing the share price to be agreed between the company and the departing member. For UK shareholders subject to UK tax, the proceeds of sale are treated as capital for tax purposes.

Usually listed companies arrange for an annual authority to enable them to purchase up to 10% of their share capital and, if a company plans to commence a buyback programme, it will give notice of that intention.

There are some limitations of the share buyback procedure, however:

• the shares to be repurchased must be fully paid;
• premium-listed companies are only able to buy back up to 15% of their shares and they will typically only have authority from shareholders for 10%;
• stamp duty of 0.5% will be payable on the shares that the company repurchases;
• private companies can fund buybacks out of capital, but public companies cannot;
• both private and public companies can finance the buyback out of distributable profits or a new share issue;
• unless the buyback is done by written resolution (only available to private companies), a company must allow at least 15 days for the share buyback process.

B Share Scheme (a Bonus Issue)

Under a B share scheme, a new class of shares is created that can then be redeemed or repurchased, allowing the distribution to be treated as capital instead of income. The shareholders would usually be given the option of whether to participate in the allotment of the bonus B shares but could choose a cash alternative if they would prefer the distribution to be treated as income rather than capital.

Reduction of Capital Supported by Solvency Statement

This mechanism is not available to public companies and therefore they must use the court approved procedure for reducing share capital.

A company may:

• reduce the nominal value of shares;
• reduce a share premium account (or any other capital reserve); or
• cancel shares entirely

An amount reduced/cancelled can be repaid directly to shareholders or transferred to the Profit & Loss account. The key advantage of this mechanism is that there is no stamp duty liability and there is no need to have distributable reserves, which are normally required for a share buyback.

Redemption

This procedure is available only if shares are issued as redeemable. There is no mechanism to convert already issued shares to redeemable shares. Redeemable shares can be redeemed at the option of the issuing company or the holder. The advantage of a redemption over a share buyback is that the company will not have to pay stamp duty.

Other areas Formations Direct can assist in:

• designing ways for a shareholder to exit the company under the provisions of a shareholders’ agreement and/ or the company’s articles;
• designing bespoke articles of association with preferential share rights for investors and specific investor provisions such as matters requiring investor’s consent, capital maintenance and directors duties in a shareholders’ agreement;
• share sales, acquisitions of companies, share purchase agreements with cash and non-cash consideration provisions including, share-for-share exchanges and buying out shareholders;
• intra-group reorganisations, including transfer of subsidiaries within a group, intra-group loans, dividends and share issues;
• designing articles with employee shareholder provisions, including bad and good leaver provisions and growth shares;
• alteration of share capital by subdividing or consolidating shares, converting shares into different classes, creating additional new classes of shares (e.g. redeemable and/ or preference shares) or redenominating shares into different currencies;
• re-registering public companies as private limited and unlimited companies and private companies as public;
• board support.

Thinking of having children under 18 hold shares in a company?

Our Company Secretarial team are increasingly helping clients looking after family companies interested in this route for tax purposes – however, you may not be aware of all the legal issues involved. Seeking advice prior to issuing the shares can help avoid future problems. We have outlined below a couple of the solutions we are currently providing to our regular clients.

Potential Pitfalls of Issuing Shares to a Minor

Strictly speaking, there is nothing under English law to prevent a child under the age of 18 (a ‘minor’) holding shares. However, as a minor lacks legal capacity having them as a shareholder raises a number of problems for companies:

• Where a minor holds voting shares it is not clear that they can validly exercise their voting rights before turning 18. This could potentially hinder the company’s ability to meet quorum requirements necessary for general meetings.
• Even where a minor is old enough to both sign documents and understand what they are signing, any agreement or obligations that minor enters into regarding company shares will not be legally binding on them and can be renounced up until the point that they turn 18.
• Banks have, in some cases, refused to open a bank account for a company where there are minors holding shares.

Our Company Secretarial Team offer the following solutions

1. We can set up a trust for the minor until they turn 18 (preferred). The adult trustee would be shown as the shareholder at Companies House/in the company’s books, but would have a separate trust deed in place stating that they are holding the shares on trust for the minor. This can include a signed, undated stock transfer form in favour of the minor which can be dated and put into effect when the child turns 18.

   Our prices start from £75 +VAT per trust deed
   

2. We can also set up multiple classes of shares with a non-voting class for issue to the minor. This avoids the problem of the minor blocking company decisions set out above, although there will still be problems with them being asked to pay for their shares or transferring shares before they turn 18.

          Our prices start from £150 +VAT for creating multiple share classes

Please contact our CoSec helpline if you want advice on the best structure for you or your client: 0800 085 45 05.