As things stand, all charitable companies limited by guarantee (together with the few exceptions where charities have been established as companies limited by shares) and all wholly-owned trading subsidiaries of charities will be subject to the regime.
This is unfortunate; the new measure has been introduced by the Small Business, Enterprise and Employment Act 2015 to increase corporate transparency by creating a full picture of both the legal and beneficial ownership of businesses, with the aim of combating tax evasion, money laundering and the financing of terrorist activities.
The concept of “beneficial owners” does not sit well with the charity sector where organisations are not owned in the same way that a commercial entity would be.
It is unlikely that the new regime will be onerous for the large majority of charities, but every incorporated charity will need to take some action.
One of the criteria for being a PSC is holding, either directly or indirectly, more than 25% of the voting rights. For a charitable company this means looking at the members.
Any charitable company will need to list its members as PSCs if the number of members is three or less. If there are four or more members, which will usually be the case, each individual will hold no more than 25%, and hence there will be no PSC.
However, the PSC register must never be blank, and so where there is no PSC charities will need to keep a PSC register containing specific wording stating that there is no registrable person:
If the company has taken all reasonable steps to identify any PSCs or RLEs, and is confident that there are no individuals or legal entities which meet any of the conditions for registration in relation to the trust, this must be entered on the PSC Register. In this case the register should state: “The company knows or has reasonable cause to believe that there is no registrable relevant legal entity in relation to the company”.
We have a director who is not a member – is this person a PSC?
The directors of a company are classed as excepted roles, alongside employees and professional advisers.
Directors will therefore not generally be PSCs unless the role differs in material respects or contains significantly different features from how the role of relationship is generally understood.
It is fairly common for directors(trustees) of charities to also be members, although many charities do have independent members who are not on the board.
The individuals acting as directors will therefore generally only be caught if they also act as members of the charitable company, and, as noted above, there are less than four members.
What about the “significant control” test and our CEO?
As noted on our general guidance one of the tests to determine whether a person has significant control is whether a person has the “right to exercise, or actually exercises, significant control or influence or control.”
Technically exercising significant control could include where an individual who is not a member of the board of directors, but who regularly or consistently directs or influences the board, or who is regularly consulted on board decisions.
It could therefore be open to question whether a charity’s Chief Executive Officer could fall into this definition. We commented above that employees are ‘excepted roles’, however, this does not prevent an individual from being a PSC if “the role or relationship differs in material respects from how the role or relationship is generally understood.”
We believe that most charity CEOs will not be captured under the rules and would therefore not need to be disclosed as PSCs, but each charity’s circumstances need to be reviewed.
What about Charitable Incorporated Organisations (CIOs)?
CIOs themselves will not need to maintain a PSC register, since the requirements only apply to UK companies and LLPs. If your CIO has a trading subsidiary please see below.
What about trading subsidiaries of charities?
Trading subsidiary companies will need to maintain their own PSC register.
As long as the trading subsidiary is 100% owned by a charitable company then the subsidiary’s PSC register will only need to disclose details of the parent charity.
There may be a few unincorporated charities or charitable trusts which have trading subsidiaries, and under the guidance as it stands, the PSCs of trading subsidiary will be the trustees of the parent charitable trust. This means that the trading subsidiary would need update its PSC register each time the trustees of the parent charitable trust changes!
The position for trading subsidiaries of CIOs is unclear; one could argue that the trading subsidiary will not have a PSC, but there is a further train of thought that, as for a charitable trust, all of the charities trustees are caught.
If you would like to discuss the above, or any matter relating to your charity, please contact your usual UHY adviser or one of our charity sector experts at your nearest location.
