Shareholders, Directors and PSCs: Structuring a UK BTL Company

When setting up a UK company, you need to decide in advance on the company’s shareholders, its Person with Significant Control (PSC), and its directors. Can one person hold all three roles at once? And what are the different responsibilities and interests attached to each? This article looks in detail at the differences — and the effects — between a shareholder, a PSC and a director when setting up a UK company.

What Is a “Shareholder”?

A shareholder is, in essence, an owner of the company, entitled to a share of the company’s profits through dividends. A UK company must have at least one shareholder.

A single shareholder can hold all of a company’s shares, or several shareholders can hold equal or unequal shares between them. For example, if a company has 4 ordinary shares, and one shareholder holds 1 share while another holds 3, that is equivalent to the two shareholders holding 25% and 75% of the company respectively.

Being a shareholder generally means having voting rights and influence over how the company is run. Shareholders can also receive dividends from company profits, generally in proportion to their shareholding — for example, a shareholder holding 3 of a company’s 4 shares would generally be entitled to 75% of any dividend. If you plan to set up a company with others to hold a UK property, regardless of your relationship, it’s advisable to agree on the shareholding split in advance, to avoid future disputes. Although a shareholder can be added to a company later, and the process isn’t especially complicated, it may take considerable extra time and legal cost.

What Is a “Person with Significant Control” (PSC)?

PSC stands for Person with Significant Control, a status that came into force in the UK in April 2016. Its purpose is to increase transparency around UK businesses, making it easier for investors to identify a company’s actual beneficial owner, while also helping authorities prevent money laundering and similar activity. Every limited liability company, limited partnership (LLP), trust and firm operating in the UK is now required to identify its PSC, keep a record at Companies House, and make that record public. Under UK company law, a PSC must directly or indirectly hold more than 25% of the company’s shares, or more than 25% of its voting rights.

In other words, a PSC must also be a shareholder, and carries greater responsibility than an ordinary shareholder. If the PSC is a natural person, the company records their personal details, including name, date of birth, nationality and a service address. Their residential (home) address is also recorded but is not disclosed publicly.

What Is a “Director”?

A director bears legal responsibility for running the company. The law requires a company to have at least one director. In most cases a director is also a shareholder, though this isn’t always true — a director runs the company, while a shareholder owns it. A director carries a range of legal duties (such as running the company diligently) as well as many administrative duties (such as filing company accounts on time). Failing to properly carry out these duties can expose a director to substantial fines. For this reason, it’s common in the market to hire a specialist BTL (buy-to-let) company management service, which can save an investor considerable time and effort. Research suggests owners without a company management service typically spend 1–7 days a month managing the company.

Should a Company’s Shareholders and Directors Be Individuals or Entities?

For a company set up to invest in a BTL (buy-to-let) property, it is generally recommended that individuals — rather than entities such as a trust or a limited liability partnership — act as shareholders and directors. Most BTL mortgage lenders treat this as a precondition when underwriting a loan against the property.

What Is the Best Share Structure for a BTL Company?

A company may issue different types of shares, such as ordinary shares. But it’s generally recommended that a property-holding company use a simple share structure — this is easier to manage, and it also lets a mortgage lender’s due diligence complete faster. For this reason, it’s generally recommended that a company issue ordinary shares, with each ordinary share carrying one vote. Some share structures give different classes of share different voting rights, which is considerably more complex than “one share, one vote,” and naturally takes longer when applying for a mortgage.