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The White Paper it published then set out various proposals which are now being formalised by the Economic Crime and Corporate Transparency Bill introduced to Parliament in September 2022. As the Bill makes its way through the parliamentary process, it will (and has already been) subject to some amendments. This means it’s difficult to say in exactly what form each proposal will be implemented. However, there are key measures relating to the management of UK companies which seem certain in general scope and are summarised below.
Exactly when each measure will be put in place will be clarified as we come closer to Royal Assent. Much will depend on the speed with which Companies House can implement processes to support the changes coming through. We anticipate these changes being introduced in a phased way – with those relating to identity verification arriving first (this Companies House blog suggests Royal Assent by Spring 2023, although much needs to be done to achieve this).
All new and existing directors will have to verify their identity with Companies House. This requirement may also extend to non-UK companies with an “establishment” in the UK.A director will not be able to act as such unless they have verified their ID (and the appointing company needs to ensure verification or also be at risk of committing an offence).
Directors must ensure their appointment is notified to Companies House – otherwise they will have committed an offence.
Corporate directors of UK companies will no longer be allowed unless they satisfy an exemption, which requires: a) the corporate director to be incorporated in the UK and have only natural persons (whose identities have been separately verified) on its own board; and b) there to be at least one natural director sitting alongside the corporate director (which mirrors existing law).
There can be only one “layer” of corporate director. Multiple corporate directors running up and down groups of companies will not be permitted
Every PSC (existing and new) will have to verify their identity with Companies House. For “relevant legal entities” (RLEs), this will mean verifying the identity of a relevant officer (i.e. director), although it does not appear that such verification will need to be filed with Companies House, simply the relevant officer’s name.
Shareholders will not need to verify their identity (it was suggested but withdrawn as a proposal).However, private companies (and certain traded companies) will need to provide a one-off shareholders list, which must be annually updated.
Companies House will collect and display more information from companies claiming an exemption from the requirement to provide details of their PSCs. For example, if the PSC is a RLE listed on a regulated market, the name of the market on which it is listed must be disclosed.
Anyone seeking to make filings on behalf of a UK entity must first be authorised by Companies House. This includes company secretaries, formation agents and other third party suppliers e.g. legal and accounting firms.
Full names of shareholders, subscribers and members must be noted in a company’s statutory registers (not abbreviations).
Companies will no longer need to keep their own registers of directors, directors’ residential addresses, secretaries and PSCs (but will need to notify Companies House of any related changes).
The ability to have a company’s register of members held at Companies House will be withdrawn.
Individuals will be able to ask for additional personal information to be suppressed from the Companies House public record e.g. signatures, full dates of birth, former names, residential addresses and professions.
A company must have a registered office address which is “appropriate”, meaning somewhere that documents delivered to it would be expected to come to the attention of a person acting on behalf of the company and can be recorded by obtaining an acknowledgement. This appears to apply to non-trading companies. It is not clear if a PO Box address will be “appropriate”.
All companies to maintain a non-public “appropriate e-mail address” where messages can reach a person acting on behalf of the company. Again, this would appear to apply to non-trading companies.
Accounts filed at Companies House will need to be fully tagged in iXBRL digital format e.g. the net assets figure should be labelled using the net assets tag.
Filing options for small and micro companies are to be simplified by reducing the filing options to just two: micro-entities and small companies (removing the abridged and “filleted” accounts options).Companies House will require a balance sheet, profit and loss account and directors’ report for all small companies (except where a small company satisfies the micro-entity thresholds when the directors’ report filing becomes optional).
Small companies and micro-entities will be required to file sufficient information to confirm they qualify for the accounting category they claim to fall within.
Dormant companies will be required to file an eligibility statement (confirming that the company is not trading and meets the criteria for filing dormant accounts).
Limits to the number of times a company can shorten its accounting reference period are expected.
Companies House to have broader powers to reject and query information being filed, review and change company names and registered office addresses and remove material which impacts the integrity of the public register.
Companies House to be able to cross reference and share information more widely with other government/public bodies to identify discrepancies and economic crime.
Companies House fees are likely to remain low relative to international standards but are expected to increase.
Prohibition of company names which include computer code, or are intended to facilitate dishonesty or deception, or which are falsely connected to foreign government and international organisations (e.g. the United Nations).
Sanctions for breach are expected to be varied but, in certain circumstances, will include criminal liability as well as civil penalties. These could attach to relevant individuals, as well as to the UK entity involved.
Keep an eye on developments – the Bill is being reviewed, amendments may be made and timings are not clear.
As a pre-emptive step, it would be useful for companies to:
work through their group structures to identify any corporate directorships and map out changes to these that might be required (for example, removing any “layering”);
prepare their directors, PSCs and presenters for ID verification – so that when the verification process is finalised and live, they are ready to lodge what is needed (Annex 1 of the White Paper sets out a useful table of who will need to verify their ID for each entity type);
review each group company’s register of members to ensure no abbreviated names are used;
consider how best to prepare for iXBRL digital formatting and the balance sheet, profit and loss account and directors’ report requirements noted above;
consider what exemption evidence and eligibility statements will need to be provided (for dormant companies, small companies, micro-entities and PSCs particularly); and
consider what their “appropriate e-mail address” and “appropriate address” will be.
The summary above focuses on what we have identified as key features of the planned regime but much more is covered in the Bill and these Factsheets, to which we recommend companies refer.
Note too that the Bill covers a wide range of other proposals (including for other UK entity types like LLPs and LPs – where proposals are not dissimilar to the above but not identical). Our summary in this insight covers only those proposals we think most relevant to a company’s day-to-day operations.
We would be happy to work with you on your analysis and implementation of any changes needed. Please do get in touch with your usual TLT contact, Alison Johnson or any other member of the Corporate team.
16 February 2023