Is a director a person with significant control?

Introduced in 2016 to increase transparency in limited companies and limited liability partnerships, the register of People with Significant Control (PSC register) has added an element of potential confusion to the process of running and maintaining a limited company.

In this blog, we’re going to tackle one of the most common questions regarding PSCs in a limited by shares company: Is a director a person with significant control?

Let’s take a look.

Is a director a person with significant control (PSC)?

Directors and people with significant control are different.

A director is a person or corporate entity tasked with the day-to-day running of a company. A PSC is ‘someone who owns or controls your company’. The two are not entwined.

Generally, a director is only a PSC if they are also a shareholder in the company.

• 10 duties of a company director
• Does a director have to be a shareholder?

According to gov.uk, a person is considered a person with significant control if one or more of the below ’nature of control’ criteria is met:

1. Directly or indirectly holding more than 25% of the shares
2. Directly or indirectly holding more than 25% of the voting rights
3. Directly or indirectly holding the right to appoint or remove the majority of directors
4. Otherwise having the right to exercise, or actually exercising, significant influence or control
5. Having the right to exercise, or actually exercising, significant influence or control over the activities of a trust or firm which is not a legal entity, but would itself satisfy any of the first four conditions if it were an individual

These specifications are normally linked to powers associated with a company’s shareholders (also known as members) – the owners of a company, not directors.

Therefore, for a director to be a person with significant control, they will typically also need to be a shareholder in the company. This is not a rare occurrence, as a large number of UK limited companies are either one-man-bands or operating with multiple people acting as both directors and shareholders.

This, in turn, leads to the below question:

Is a shareholder a person with significant control?

Not all shareholders are PSCs. As outlined above, to be considered a PSC, a shareholder must hold over 25% of shares in the company, or hold more than 25% of the voting rights in the company, or hold the right to appoint and resign the majority of the board of directors.

If a company has just one shareholder, then yes – that person/corporate entity will be a PSC.

In instances where a company has more than one shareholder, not all shareholders will necessarily be PSCs. It depends on the number of shares each shareholder has and the voting rights attached to these shares.

Example 1

A company has two shareholders, John and Jane.

John has 15 ordinary shares with full voting rights (75% of shares in the company) and Jane has 5 ordinary shares with full voting rights (25% of shares in the company).

John is a PSC as he has more than 25% of the shares in the company. Jane is not a PSC as she does not have more than 25% of the shares in the company.

Example 2

John has 15 shares with no voting rights and Jane has 5 ordinary shares with full voting rights.

John is a PSC as he has more than 25% of the shares in the company. Jane is also a PSC as she has more than 25% of the voting rights in the company (she has 100%).

Significant influence or control

In the majority of cases, a company’s PSC will be the shareholder.

However, there may be scenarios when the PSC is not a shareholder but instead, someone else (or a corporate entity) who has a significant influence or control that’s not defined by the number or type of shares that they hold, or their direct ability to appoint or remove the majority of directors.

Example

James set up a successful company a number of years ago, but recently decided to retire and sell his shares to his adult children. He no longer has an officially named role in the company, but continues to be hands-on and tells his children exactly how the company should be run. They listen and do exactly as he says. In this instance, James could be considered the PSC.

We recommend looking at gov.uk’s advanced guidance on PSCs if you suspect that your PSC is not a shareholder.

Maintain your PSC register with our Full Company Secretary Service

All companies registered under the Companies Act 2006 need to keep and maintain a PSC register. If you would like assistance with this, this particular service is included as part of our Full Company Secretary Service, available for only £149.99 per year.

With the service, as well as ensuring that your PSC register is being looked after, you will also get:

• An account manager is always on hand to help with any questions that you may have
• Correct and timely preparation of your company’s confirmation statement
• The maintenance of all five of your company’s registers, including your statutory Register of Members
• 15 fully compliant updates to your company (for example, director appointments, share transfers, and share allotments)
• Monthly guidance notes written by a solicitor, on topics company directors should be aware of

The service is perfect for ensuring your company’s compliance is being dealt with correctly and efficiently.

Thank you for reading

So, is a director a PSC?

Not automatically. To summarise – generally speaking – to be a PSC the director would also need to be:

• a shareholder (who holds more than 25% of shares in the company or more than 25% of the voting rights in the company), or
• someone with the authority to appoint or remove the majority of directors (not a power typically held by a director), or
• someone who holds ultimate control over the company through an alternative means

We hope you have found this post helpful.

If you still have questions about people with significant control, the people with significant control register, or anything else related to limited companies, please get in touch via a comment.