Corporate transparency and Register reform: administrative burden or essential modernisation?

The Government is proposing substantial changes to registration and filing processes at Companies House and its general role. This is part of widespread reform to crack down on illegitimate business, money laundering and the abuse of the UK’s open economy.

The Economic Crime and Corporate Transparency Bill (“Bill”), introduced to Parliament on 22 September 2022, aims to deliver the provisions for Companies House reform and provide new powers to obtain intelligence and sharing of information to tackle economic crime.

This article outlines the various reforms that are envisaged, the timeframe for such reforms and how they may affect you in practice.

Key areas of reform and benefits

The key areas of reform (as set out in the published consultation response on the Government website) focus on matters such as improving content at Companies House and putting into place further protections regarding data protection and include:

1. Knowing who is setting up, managing and controlling corporate entities;
2. Improving the accuracy and usability of data on the companies register;
3. Protecting personal information; and
4. Ensuring compliance, sharing intelligence, other measures to deter abuse of corporate entities.

Further detail on each of these areas is included in our Q&A below.

With reform comes various anticipated benefits, not just economically but also financially. With the implementation of additional checks on information submitted to Companies House and greater aims for transparency, economically this means that businesses, investors and professionals will be able to have greater reliance on the information held and save them time and resources. Financially, the more accurate information will allow UK law enforcement to allocate costs to other areas, rather than investigating the accuracy of information when tracking down those who misuse companies and use them as a vehicle for criminal behaviour.

Q&A

1. Who will these reforms impact?

• Individuals such as company directors (both new and existing directors), persons of significant control (“PSCs”), and business professionals that access a company’s details.
• Agents that act on behalf of directors and companies.
• Registered companies, LLPs and limited partnerships.

All company directors, PSCs and agents will need to have a verified account at Companies House. There will be a transitional period where directors and PSCs can carry on their existing role whilst going through the process of verifying their account. But once the transitional period has ended, unverified individuals will face possible action.

Shareholders will not be affected by the new identity verification process.

2. What are the new ID verification requirements?

ID verification will be applicable to new and existing directors, new and existing PSCs, and all those delivering documents to the Registrar. 

The process is yet to be finalised but aims to include linking a person with an ID document such as a driving licence or passport directly with Companies House using digital or non-digital ID verification software. Verification can be done in minutes if the digital software matches the person to their document. The verification process can also be handled indirectly by an agent such as an accountant or lawyer who will have to register with Companies House and show that they are supervised for anti-money laundering purposes. They will be known as an ‘authorised corporate service provider’.

The Companies Act 2006 will be amended so that until a director’s identity has been verified, they should not undertake any activity on the company’s behalf in their capacity as director. If they do so, they will commit an offence (although any activity undertaken by an unverified director will be valid).

3. As well as the ID requirements, are there any other new provisions that will affect directors?

Yes. An individual will not be able to act as a director unless the company has notified Companies House of the director’s appointment within 14 days of them becoming a director. The notification must also include a statement that the director’s identity has been verified.

A new section will be inserted into the Companies Act as well that states a person who ceases to be a director due to being disqualified under relevant directors’ disqualification legislation shall remain liable for their actions if they continue to act as a director. This includes acting as a de facto director (where they are not formally appointed but act as a director of the company).

4. Are there any further rules regarding the registered office address?

Yes. The registered office address for a company will have to constitute an ‘appropriate address’. This is an address where the delivery of a document is able to be recorded by obtaining an acknowledgement of delivery, and a document addressed to the company and delivered by hand or post would come to the attention of an individual acting on the company’s behalf.

Companies will also have to maintain an appropriate email address, whereby emails sent to it by the Registrar would be expected to come to the attention of someone acting on the company’s behalf. This will allow the Registrar to communicate electronically with companies (but the registered email address will not be available for public inspection).

5. What if someone holds roles in more than one company, do they need to have separate accounts?

No, separate accounts are not necessary. It is anticipated that an individual will have a single user account that can be linked to multiple roles.

6. What are the new rules affecting company incorporations?

• The application to Companies House to form a company will require an express statement that the company’s purposes will be lawful.
• Company directors will be required to have their identity verified, confirm that they are not disqualified directors under relevant disqualification legislation or are not otherwise ineligible to be a company director.
• The statement of PSCs requires a statement that none of the PSCs or relevant legal entities are disqualified and their identity has also been verified.
• Subscribers to the memorandum of association must state their full name rather than simply an initial for their first name, for example (this is the same when drafting the register of members).
• Company names will come under greater scrutiny, with the prevention of a company being registered where the purpose of a company name is to facilitate what would be an offence of deception or dishonesty, with conduct outside the UK being taken into account.
• Company names cannot include computer code.
• Company names can be changed if the names provides a misleading indication of the company’s activities, or the name is construed as intending to be used outside the UK for criminal purposes.
• All companies registered under the Companies Act 2006 before a new clause (currently set out in the Bill requiring full names to be included in the register of members) comes into force, will be required to provide a full list of shareholders with the first confirmation statement filed on a date that is after the day on which the new clause comes into force.

Directors can have their identity verified before the incorporation process begins and as many companies have only one director on incorporation it is anticipated that these companies will still be incorporated within 24 hours.

Companies will also have to maintain their own register of members, rather than elect to keep information about members on the central register maintained by the Registrar of Companies.

7. Will records of company accounts be affected?

Accounts may be categorised to help determine whether a company is small, medium or large. Further data will be requested by Companies House to ensure eligibility for the right type of category when filing accounts, and it is likely that the option for small companies to file abridged accounts will be removed.

8. What about companies that are exempt from PSC requirements or owned by relevant legal entities that are exempt?

The recommendation is that additional information be requested from companies that are exempt from PSC requirements as there was some concern that such exemptions could be falsely claimed by companies. Companies will need to state why they satisfy the conditions for an exemption and if listed, ideally provide a hyperlink to the company’s market listing or registration information, the name of the market where the company shares are traded or alternative evidence of the company being listed on a main market to clarify why they are exempt.

9. How will Limited Partnerships and LLPs be affected?

It is expected that secondary legislation will be passed at a later date which seeks to amend company law for LLPs, and Part 2 of the Bill addresses the changes for limited partnerships (“LPs”). Key changes will include:

• Members of LLPs needing to verify their identities and the identity of their PSCs.
• LLPs that are general partners (or “GPs”) of a limited partnership, and also a corporate entity, will have to name a managing officer who is an individual for the purposes of communication with the GP.
• LLP will only be able to act as a corporate director if the members have each had their identity verified.
• Requiring LPs to have a stronger connection to the part of the UK in which they are registered.
• LPs can be deregistered if they are no longer carrying on business or have been dissolved.
• All LPs will need to submit a statement that the information held at Companies House about the LP is correct.

10. Will there be any changes to the requirements for a company to keep registers of directors etc.?

Yes, Schedule 2 to the Bill contains a number of amendments to remove the requirements for a company to keep its own register of directors, register of directors’ residential address, register of secretaries and register of people with significant control, but companies will be required to notify Companies House of its directors and other information currently contained in the registers and any changes to the information provided.

11. Does this mean the register at Companies House will be more accurate?

The aim is for information to be more reliable and accurate as the Registrar of Companies will be given greater powers to question and challenge information that is submitted, in particular that the Registrar is not obligated to accept a validly submitted application to register a company.

It will also become easier to add or remove inaccurate information that is currently held at Companies House, and further legislation is envisaged to enable the cross-referencing of Companies House data against other data values.

12. What is the anticipated timeframe before we see these reforms come into effect?

The second reading of the Bill is scheduled for 13 October 2022. It is now likely that it will still be several months (rather than years) before the changes come into effect.

Concluding Thoughts

Although the reforms seem to be effecting further administrative burden on companies and individuals, it is encouraging to see that the primary focus of the reform is to streamline many of the processes we are familiar with. The response to the consultation suggests that ultimately the reforms will (perhaps subject to some initial teething problems) reduce complexity, increase protections around personal data and potential for fraud and provide comfort that the information available at Companies House is reliable and more accurate than the existing system.

For further information on the anticipated reforms or to find out about our Company Secretarial service to assist you with filings at Companies House and your statutory registers, please contact our Corporate team.