Most of us can probably think of people in our churches that have a significant influence on how they operate: pastors, elders, trustees and even some prominent congregational members. However, are you aware that for charities that are companies (that does not include Charitable Incorporated Organisations (CIO)), there is a Companies Act legal concept of persons with significant control (PSC) and a legal requirement to maintain a register of all PSCs?
Although this legislation is not directed primarily at charities and although it may not provide any useful information for the church, failure to comply is a criminal offence. But remember: because this is a Companies Act requirement, there is no impact on churches that are constituted as trusts or CIOs.
So what makes a person with significant control?
A person with significant control is someone who meets at least one of five conditions. Three of those conditions are quantifiable with the other two requiring a degree of judgement:
- Owns more than 25% of the shares of the company;
- Holds more than 25% of the voting rights of the company;
- Has the right to appoint or remove a majority of the board of directors;
Conditions requiring some judgement
- Has the right to exercise or actually exercises significant influence or control;
- Has the right to exercise or actually exercises significant influence or control over a trust or firm which itself would be a PSC if it were an individual.
Whilst the measurable conditions are straightforward, the judgemental conditions are perhaps less so and can apply to any person in the church, not just the recognised leaders. For a person to be considered to exercise significant influence or control they would need to be in a position where their recommendations are always or almost always followed by those people which have a majority of the voting rights.
We do not think that this covers the majority of church situations, even where a pastor proves to be quite influential and gets their own way more often than not. The very act of debate and reaching a consensus means that most pastors are unlikely to meet this condition. However, in churches where the pastor is a dominant figure, both expecting and in practice seeing the church fall in line with his/her recommendations, then they are much more likely to meet this condition and so be considered a PSC.
Pastors as PSCs are those which dictate the direction of the church rather than those that win the day through debate, argument and persuasion.
What do we have to do?
The short answer is that if you are a company then you need to do something, even if you reach a conclusion that you have no PSCs in your church. To comply with the law:
- You have to maintain a register (stating you have no PSCs if that is the case);
- You have to keep the register up-to-date; and
- You have to include it with your annual confirmation statement to Companies House.
There is no prescribed format for the register, but there is a list of information needed which you can find in our briefing paper together with some examples and more in depth consideration of the five conditions.
If you are a company (regardless of whether you assess that you have PSCs or not) and are not currently keeping a PSC register, then you need to start now. Although we are not expecting to see prosecutions any time soon, we believe that church companies should be leaders in compliance and best practice.