CopiedLegal Entities as “Persons Closely Associated” Under MAR

Under MAR, issuers, their Persons Discharging Managerial Responsibilities (PDMRs), and their Persons Closely Associated (PCAs) all have important compliance obligations. One key obligation is for the issuer to maintain a list of PDMRs and PCAs. Setting aside familial associations, this article focuses on legal entities (typically companies) as PCAs, or PCA entities.

Definition of PCA Entities under MAR Copied

The MAR (Art. 3(1)(26)) definition of a PCA entity can be complex, and the ESMA Q&A Q7.7 (updated 23 June 2022) provides limited clarification. In short, a PCA entity exists when the issuer’s PDMR (or an individual PCA to such PDMR) fulfills any of the following conditions:

1. Directly or Indirectly Controls the Entity
2. Has Had the Entity Set Up for Their Benefit
3. Has Substantially Equivalent Economic Interests to the Entity
4. Takes Part in or Influences the Entity to Transact in the Issuer’s Instruments

Fulfilling any of these four conditions classifies an entity as a PCA entity.

Details of PCA Requisites Copied

1. Control of the Entity Copied

• Requisite 1 generally refers to situations where a PDMR has majority voting rights or effectively controls the entity. This could involve different ownership structures, such as pyramid or shareholder agreements.
• Determining indirect control can vary by country. For instance, a company owning 51% of another company, which in turn owns 51% of the entity, may constitute indirect control.
• There are challenges in determining control when there is no clear majority owner or ultimate beneficial owner (UBO), particularly when ownership is dispersed. The EU 4th Anti-Money Laundering Directive and its 25% threshold may influence such determinations.

2. Entity Set Up for the Benefit of a PDMR Copied

• Requisite 2 addresses scenarios involving trusts or foundations where the PDMR is the beneficiary.
• In some edge cases, such as piercing the corporate veil, a company set up purely for the benefit of its owner might also fall under this requisite.

3. Equivalent Economic Interests Copied

• Requisite 3 is less straightforward and may include synthetic participations, profit-sharing arrangements, or certain extreme employee stock ownership plans.

4. Influence Over Transactions in Issuer’s Instruments Copied

• Requisite 4 is often seen as cryptic. It generally concerns situations where a PDMR or PCA individual is also in a PDMR position within the entity, influencing its decisions to transact in the issuer’s instruments.
• According to ESMA, this requisite applies when a PDMR influences an entity’s transactions in the issuer’s securities. To avoid the risk of an entity becoming a PCA entity, a PDMR should ideally be excluded from voting or participating in discussions about such transactions.

Challenges in Determining PCA Entities Copied

• While in most situations, it is straightforward to determine whether an entity qualifies as a PCA entity, complexities arise in the context of complex corporate structures or family relations.
• Legal ambiguity in these cases often requires careful analysis and expert advice.

Conclusion Copied

In conclusion, the classification of PCA entities under MAR can be relatively clear in straightforward cases, but there are numerous edge cases where the legal situation remains uncertain. To ensure compliance, PDMRs and issuers must conduct thorough analyses and seek expert guidance, particularly in scenarios involving intricate corporate structures or family relationships.

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