Is a Director a Person with Significant Control?
The People with Significant Control (PSC) register, established in 2016, has enhanced transparency in UK companies. However, it has also introduced some complexity, especially in determining if a director qualifies as a PSC.
This article will address the common question: Is a director considered a person with significant control?
Let’s explore this in detail.
Directors and PSCs hold distinct roles. A director is responsible for the daily management of a company, while a PSC is someone who owns or controls the company. These roles are not necessarily interconnected.
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:
- Directly or indirectly holding more than 25% of the shares
- Directly or indirectly holding more than 25% of the voting rights
- Directly or indirectly holding the right to appoint or remove the majority of directors
- Otherwise having the right to exercise, or actually exercising, significant influence or control
- 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 powers are usually linked to the rights and responsibilities held by a company’s shareholders (also referred to as members), who are the true owners of the company, rather than its directors.
For a director to be classified as a person with significant control (PSC), they generally also need to be a shareholder in the company. This scenario is quite common in the UK, where many limited companies are either sole proprietorships or involve several individuals serving as both directors and shareholders.
This brings us to the following question:
Is a shareholder a person with significant control?
Not all shareholders qualify as PSCs. As explained earlier, for a shareholder to be considered a Person with Significant Control (PSC), they must meet one of the following conditions:
- They hold more than 25% of the shares in the company.
- They control more than 25% of the voting rights.
- They have the right to appoint or remove the majority of the board of directors.
If a company has only one shareholder, that person or corporate entity will indeed be a PSC. However, in companies with multiple shareholders, not all of them will necessarily qualify as PSCs. It depends on the number of shares each shareholder holds and the voting rights attached to those shares.
Example 1:
A company has two shareholders, Alex and Maria.
Alex holds 15 ordinary shares with full voting rights (75% of the shares in the company), while Maria holds 5 ordinary shares with full voting rights (25% of the shares in the company).
Alex is a PSC because he holds more than 25% of the shares in the company. Maria is not a PSC as she does not hold more than 25% of the shares.
Example 2:
Alex holds 15 shares with no voting rights, and Maria holds 5 ordinary shares with full voting rights.
Alex is a PSC because he holds more than 25% of the shares in the company. Maria is also a PSC because she has more than 25% of the voting rights in the company (she has 100%).
Significant Influence or Control
In most cases, a company’s PSC will be the shareholder. However, there may be instances where the PSC is not a shareholder, but rather someone else (or a corporate entity) who has significant influence or control that isn’t defined by the number or type of shares they hold, or their direct ability to appoint or remove the majority of directors.
Example:
Emily founded a successful company several years ago but recently decided to retire and sold her shares to her adult children. Although she no longer holds an official role in the company, she remains actively involved and directs her children on how to run the company. They follow her instructions precisely. In this situation, Emma could be considered the PSC.
We recommend consulting gov.uk’s advanced guidance on PSCs if you suspect that your PSC is not a shareholder.
Can Startxpress help me to maintain my PSC register?
All companies registered under the Companies Act 2006 must maintain a PSC register. At Startxpress, we offer UK Company Formation Packages that include maintaining this register for you, ensuring compliance with legal requirements.
So, is a Director a PSC?
In summary, a director is not automatically a PSC. To qualify as a PSC, a director must also meet at least one of the following conditions:
- Be a shareholder holding more than 25% of the shares or more than 25% of the voting rights.
- Have the authority to appoint or remove the majority of directors.
- Hold ultimate control over the company through other means.
For more details, check out the Startxpress Help Center and Blog.
If you have more questions about People with Significant Control, the PSC register, or other company-related matters, feel free to contact us at support@startxpress.io. We’re happy to assist.
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