Corporate transparency and major reforms - all change for Companies House

Posted: 23/05/2022

The UK government’s white paper on corporate transparency and reforms to Companies House details the final plans that will transform the role and operation of Companies House and amount to some of the most significant changes to UK corporate transparency in 170 years.

The proposals are intended to clamp down on the use of UK corporate entities and help safeguard national security. They sit alongside measures recently touted under the Economic Crime (Transparency and Enforcement) Act 2022 which, among other things, introduces a register of overseas entities (see our article here).

We consider some of the key changes below.

Role and powers of the registrar

Under the proposals, Companies House will be granted a new statutory function aimed at bolstering the registrar’s role to promote and maintain the integrity of the register through the use of new discretionary powers that broadly relate to querying, removing and changing company information.

• Power to query information – the registrar will be empowered to query information either before it is placed on the register or post-registration, on a discretionary basis using a risk-based approach. Companies House will no longer be obliged to accept documents that are delivered if there is reason to query the information provided, for example, if it is identified as potentially suspicious or may affect the integrity of the register. If a query is raised pre-registration, the filing will be rejected and a reason provided.
  
  Post-registration, when a query is raised, the recipient entity will have 14 days to respond and provide supporting evidence. In order to mitigate the risk that an entity is unable to deliver the evidence required within that period, the registrar will have discretion to grant an extension of time.
  
  If an entity fails to respond to a query, or fails to provide sufficient evidence in its response, the registrar will have a range of sanctions at its disposal, which are currently being considered.
  
  
• Power to remove information – the registrar will have a discretionary power to remove information from the register if it affects the integrity of the register. Currently, the registrar has had limited powers to remove material from the register.
  
  
• Power to change information – the registrar will also have a discretionary power to change the address of a company's registered office to the default address (ie a PO box at Companies House) without application, if the registrar is satisfied that the company is not authorised to use the address or there is evidence that the address does not exist.

Further, Companies House will be able to reject a proposed company name, or order a change in existing name within 28 days, in certain circumstances (such as where the name is part of a targeted campaign or belongs to another organisation and is being used without permission). If the company fails to comply, the registrar will be able to change the name to the company’s registered number, or an alternative.

Identity verification measures

As well as providing the registrar with additional powers, one of the major proposals relates to new identity verification processes for:

• all directors, including directors of overseas companies and equivalents for other registrable entities, such as members of limited liability partnerships (LLPs) and general partners of limited partnership (LPs);
• persons with significant control (PSCs); and
• anyone else submitting filing information on a company's behalf.

The underlying objective is that 'all entities registered at Companies House will have at least one fully verified natural person directly associated with them on the public register.' This new digital identity service is expected to be carried out by one or more third party identity service providers. Once verified, users will have one account to access all Companies House services, across all companies for which they are authorised to act, without having to re-verify their identity each time.

Companies House will not register new directors and other registrable entities without them having a verified account. New PSCs - who can initially be registered without verification - will need to verify their identity within a set period of time after registration. There will also be a transition period for existing directors, PSCs and other registrable entities to comply with the new identity verification requirements.

Those that fail to comply by the end of the given period, including a company that is directed by an unverified director, may face criminal sanctions and be liable for civil penalties. Likewise, if an individual fails to verify, the register will be annotated to show this so that anyone viewing the register can make their own assessment of that entity’s risk profile.

Ban on corporate directors

The white paper also proposes a significant statutory ban on a UK company having corporate directors unless limited exceptions apply, namely if all of the corporate director’s own directors are natural persons and their identities are appropriately verified before the corporate director is appointed. By contrast, a company can currently have any number of corporate directors if it has at least one director who is a ‘natural’ person.

Further, only UK entities with legal personality will be permitted to serve as corporate directors. This includes, for example, companies and LLPs. Overseas entities will not be allowed to serve as corporate directors of UK companies.

Any entity failing to satisfy these new limited exceptions will no longer be permitted to act as a corporate director.

Different requirements will apply for corporate members of LLPs or corporate general partners of LPs. Rather, these entities will need to supply details of their director(s) or a managing officer whose identity must be verified. The government will consider whether any further restrictions should be imposed on the use of corporate members of LLPs and corporate general partners of LPs. 

Other measures

• Accounts – entities will be able to file a single set of accounts in digital format with Companies House and HMRC to simplify the overall filing process and ensure consistency.
  
  The option for small and micro companies to file abridged accounts will be removed. All small companies will be required to file a profit and loss account and all other parts of their accounts, including a directors’ report, so they will actually file what they prepare for members and HMRC. Micro-entities will also have to file both a balance sheet and profit and loss account and will have the option to file a director’s report.
  
  Directors of companies filing dormant accounts will have to make and file an eligibility statement confirming its eligibility to do so.
  
  The government will also explore options to enable companies to file their financial information for different departments at the same time, once a year.

• Personal information – it will become easier for individuals to protect their safety by applying to ‘suppress’ personal information. These new powers will apply to both newly-filed and existing information on the register. In particular, a procedure to suppress ‘sensitive addresses’ from the public register will be introduced.
  
  
• Data sharing – Companies House will have extended powers to check data submitted to it against data held in other databases, such as the Passport Office. It will also have powers to share data (whether filed data or data given in the course of verifying a person’s identity) with law enforcement agencies and regulatory bodies in certain circumstances.

Next steps

While the government’s intentions for improving corporate transparency and tackling economic crime are welcome, we now await draft legislation - expected to be contained in an Economic Crime and Corporate Transparency Bill - to implement the proposals and set out further details on how they will operate in practice.

The reforms could have wide implications, potentially delaying transactions and board appointments or calling into question the validity of corporate actions. Likewise, given the increased administrative burden that will be placed on corporate entities and the even greater importance that timely and accurate filings will have, companies should revisit their governance frameworks and consider the use of professional company secretarial software, if not already in place, to improve efficiency and reduce risk – click here for more details.

We will monitor developments and provide further updates in due course.

This article has been co-written with Shaan Mehra, trainee solicitor in the corporate team.

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