Draft statutory guidance for companies was published by BIS in January 2016 to explain the term “significant influence or control” as used in the fourth and fifth conditions referred to above (the BIS Statutory Guidance).3 The BIS Statutory Guidance notes that “significant influence” and “control” are alternatives. If a person can direct a company’s, trust’s or firm’s activities, this will be indicative of control. If a person can ensure that the company, trust or firm generally adopts the activities which that person desires, this will be indicative of significant influence. However, the “control” or “significant influence” do not have to be exercised by a person with a view to gaining economic benefits from the policies or activities of the company, trust or firm.
Examples of significant influence or control
Although the BIS Statutory Guidance does not provide an exhaustive statement of what amounts to “significant influence or control”, it provides a number of examples of what might constitute a right to exercise significant influence or control over a company or the activities of a trust or firm which itself meets a specified condition in relation to the company, as well as a number of examples of situations which would be indicative of a person actually exercising significant influence or control.
Situations which would be indicative of a person actually exercising significant influence or control over a company (and so should therefore be listed on its PSC register) include the following:
- Where the cumulative effect of the relationships a person has with the company or those who manage it place that person in a position where they actually exercise significant influence or control. The example given in the BIS Statutory Guidance is of a director who owns important assets or has key relationships that are important to the running of the company’s business and uses this additional power to influence the outcome of decisions related to the running of the business.
- Where a person is significantly involved in the management and direction of the company, for example, a person who is not on the board but who regularly or consistently directs or influences a significant section of the board or is regularly consulted about board decisions and whose views influence those decisions. This would include, but not be limited to, a shadow director.
- Where a person’s recommendations are always or almost always followed by shareholders holding a majority of the voting rights in the company when deciding how to vote their shares. The example given is of company founder who no longer has a significant shareholding but who makes recommendations to other shareholders on how to vote and whose recommendations are always, or almost always followed.
In relation to the right to exercise significant influence or control in the context of a company, the BIS Statutory Guidance points out that this may arise in a number of ways, including from the provisions of the company’s constitution, the rights attached to a person’s shares or securities, from a shareholders’ agreement or from some other form of agreement. Examples given of situations where it is likely somebody would be considered to have the right to exercise significant influence or control over a company and so should be listed on its PSC register include the following:
- Where an individual holds absolute decision rights over decisions related to the running of the business, for example, adopting or amending the company’s business plan, changing the nature of its business, making any additional borrowing from lenders, appointing or removing the CEO, establishing or amending a profit-sharing, share option, bonus or other incentive scheme for its directors or employees, or the grant of options under a share option or other share based incentive scheme.
- Where an individual holds absolute veto rights over decisions related to the running of the business, such as adopting or amending the company’s business plan or making any additional borrowing from lenders, unless that veto right is to protect a minority interest.
- Where an individual holds absolute veto rights over the appointment of the majority of company’s directors, being those directors who hold a majority of the voting rights at board meetings on all or substantially all matters.
The BIS Statutory Guidance notes that if a person holds absolute veto rights in relation to certain fundamental matters in order to protect a minority interest in the company, such as veto rights relating to a change to the company’s constitution, dilution of shares or rights (including establishing a share option or other share based incentive scheme), making additional borrowing from lenders outside previously agreed lending thresholds, fundamental changes to the nature of the company’s business or winding up the company, these veto rights are unlikely, on their own, to constitute significant influence or control over the company.
The BIS Statutory Guidance also provides a non-exhaustive list of examples of where an individual could be considered to be exercising significant influence or control over a trust, relevant to the fifth condition in Part 1 of Schedule 1A CA 2006.
Roles that may not constitute significant influence or control
The BIS Statutory Guidance specifies certain roles and relationships which a person may have with a company that would not, on their own, result in that person being considered to be exercising significant influence or control over the company. These are referred to in the BIS Statutory Guidance as “excepted roles”. However, the BIS Statutory Guidance points out that such a person could still be a person with significant influence over the company if that role or relationship differs in material respects or contains significantly different features from how the role or relationship is generally understood or exercised, or is one of several opportunities which that person has to exercise significant influence or control.
The excepted roles in the context of companies include the following:
- a person who provides advice in a professional capacity, such as lawyers, accountants, management consultants, investment managers, tax advisers or financial advisers;
- a person engaged in a third party commercial or financial agreement, for example, a lender, supplier or customer;
- an employee acting in the course of his employment and as nominee for his employer, including an employee, director or CEO of a third party (such as a corporate director company) that has significant influence or control over the company;
- a director of the company, including a managing director, sole director, non-executive director or executive director with a casting vote;
- a person who makes recommendations to shareholders on a single issue, or set of issues, on a one-off occasion, which is voted on by shareholders;
- rights held by all, or a group of, employees in order to represent the employee interests in an employee-owned company.