Our thinking Quick reads Five thousand miles from Panama: Transparency of ownership in the UK
Private Equity
April 2016
8 min read

Five thousand miles from Panama: Transparency of ownership in the UK

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Transparency has been a hot topic for the alternative assets industry for some time. New laws intending to cast light on secret structures and concealed ownership have just come into force – not in Panama, but in the UK. This article examines how they impact on UK companies and LLPs, particularly in the context of private equity fund structures.

“For too long a small minority have hidden their business dealings behind a complicated web of shell companies, and this cloak of secrecy has fuelled all manners of questionable practice and downright illegality.”

David Cameron, who said this in October 2013, may yet end up hoist by his own petard. But his words heralded a political drive to increase corporate transparency that resulted in new legislation, which by coincidence came into force only a few days after the Panama Papers burst onto the front pages of the world’s press.

The new law aims to tackle structural secrecy in the UK by publishing ultimate beneficial ownership, and it’s unlikely to be the last word on the topic.

So what has changed?

Until now most UK companies and LLPs only had to record the legal owners of their shares. However, as of 6 April 2016 the law requires them to:

  • ‘look through’ legal ownership to identify their ultimate beneficial owners and any other persons who can exercise significant control over the entity (collectively, referred to as “PSCs”);
  • record this information in a new statutory PSC Register; and
  • (with effect from 30 June) publicly disclose it in the company’s annual return (to be renamed the “confirmation statement”) filed at Companies House.

Certain exchange-listed companies are exempt, but not their UK subsidiaries.

How does this affect private equity funds?

All UK companies and LLPs are caught by these new requirements, but partnerships and limited partnerships are not. In a typical private equity structure, a general partner or manager which takes the form of a UK corporate or LLP would need to comply with the rules, as would any portfolio company of the relevant fund.

In practice the impact may be most keenly felt at portfolio company level, because it now must register the people who have ‘significant control’ over the PE fund that owns its shares and (assuming the controller is a corporate general partner and/or manager) who in turn has significant control over that entity.

That may not be an easy task in practice, particularly if the general partner/manager is incorporated offshore. Its controllers may have little appetite to subject themselves to public gaze. But under the new law no company may leave its PSC Register blank.

Who is a PSC?

Essentially, any living, breathing human who exerts ‘significant control’ over a UK company or LLP. They must satisfy at least one of the following conditions to have ‘significant control’:

Limited Company


Holds, directly or indirectly, more than 25% of the nominal share capital.Holds, directly or indirectly, rights over more than 25% of the surplus assets on winding up.
Controls, directly or indirectly, more than 25% of the votes at general meetings.Holds, directly or indirectly, more than 25% of the voting rights in the LLP.
Able to control, directly or indirectly, the appointment or removal of a majority of the board (including a sole director).Able to control, directly or indirectly, the appointment or removal of the majority of the management.
Exercises, or has a right to exercise, significant influence or control over the company by another means (e.g. contractually).Exercises, or has a right to exercise, significant influence or control over the LLP by another means (e.g. contractually).
Exercises, or has a right to exercise, significant influence or control over any trust or firm which has significant control over the company.Exercises, or has a right to exercise, significant influence or control over any trust or firm which has significant control over the LLP.

Whose information is recorded in the PSC register?

Here it can get complex, since there are some cases in which not just people but companies can be recorded in the PSC Register.

Say a UK company or LLP (let’s call it “A”) is directly owned or controlled not by individual(s) but rather by a legal entity (call it “B”), then A can record B on its PSC Register, but only if B qualifies as a “relevant legal entity”, which is where:

  • if B had been an individual, it would satisfy the conditions to be a PSC; and
  • B is either (i) required to maintain its own PSC Register (e.g. because it is itself a UK corporate or LLP) or (ii) exempt from keeping a PSC Register due to its listed status.

However, if B does not qualify as a “relevant legal entity”, then A must ‘look through’ B, further up the chain, until it finds PSCs or relevant legal entities that exert significant control over the entities up the chain.

Take a practical case: company B is an unlisted UK corporate, and company A is a wholly-owned UK subsidiary of B. In those circumstances, A would enter B in A’s PSC Register as a relevant legal entity. A does not need to look further up the chain of ownership. Because A is wholly-owned, it also registers that it has no PSCs.

Now suppose B is instead an unlisted foreign company, which in turn is directly owned or controlled by individuals, and company A is a wholly-owned UK subsidiary of B. In those circumstances, A would have to ‘see through’ B. Subject to B’s owners and controllers satisfying the conditions for ‘significant control’, company A would register those individuals as its PSCs.

What information is recorded in the PSC register?

The relevant individual’s name, service address, nationality, date of birth, date he/she became a PSC, usual residential address, and nature of control (i.e. which ‘significant control’ conditions are met).

Relevant legal entities will only be identified by name and basic corporate details.

Safeguards apply to how personal information may be used – for example, usual residential address will not be made public.

Example 1: typical onshore fund structure

In this structure, portfolio company A would look through the “fund” limited partnership B, because it is not a “relevant legal entity”. (English limited partnerships do not have separate legal personality, so are not entities in the eyes of the law.)

If, as is typical, general partner C controls the exercise of votes in portfolio company A, it would be entered in company A’s PSC Register as its “relevant legal entity” (because general partner C is an unlisted UK entity). The limited partners of the fund do not exercise any “significant control” over portfolio company A, so they won’t need to be registered.

If company A is wholly-owned by the fund, its PSC Register would also note that it has no PSCs. If not, and company A had any other PSCs or relevant legal entities, those would be registered in its PSC Register.

General partner C would have to keep its own PSC Register of its PSCs and/or relevant legal entities.

Example 2: typical offshore fund structure

In this example, portfolio company A would again look through the “fund” limited partnership. Even if the limited partnership had elected to have separate legal personality, which is an option in popular offshore jurisdictions like Jersey, it would not be a “relevant legal entity” because it is a Jersey (unlisted) entity, not a UK one.

Company A’s next stop would be general partner C, but it also isn’t a “relevant legal entity” because general partner C is a Jersey company. So company A would need to identify general partner C’s PSCs or relevant legal entities (direct or indirect), and list those on its PSC Register.

Consequences of breach

It’s clear that all fund and corporate structures that touch the UK – e.g. by having a UK general partner/manager or UK portfolio companies – will be affected by the new rules. The maximum penalties for non-compliance are significant – an unlimited fine or up to two years’ imprisonment. But Companies House is not expected to police companies and the information they supply – the system will rely to a considerable degree on self-assessment and self-reporting.


The events of the past week have made it clearer than ever that, in terms of compliance and preserving reputation, it is critical to understand the true (even if remote) control and ownership structure of your own organisation, your investors and key counterparties.

The Panama leaks will make it hard to argue that greater disclosure and transparency are an intrusion into legitimate private financial affairs, and we expect governments to pursue further measures in the next 12-18 months to bring previously secret/confidential financial arrangements into the light.

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