Corporate Transparency Legislative Reforms – what this means for you as an owner or director of a company or LLP

In possibly the most significant reforms to the powers of the Registrar of Companies since its inception in 1844, new legislation is expected to be introduced in the next few months which will reform corporate transparency and provide the Registrar with increased powers.

The aims of the Economic Crime and Corporate Transparency Bill, currently at the committee stage of the House of Lords, are to take action against fraud and money laundering and make the UK a less attractive place to facilitate overseas corruption.

This will affect all companies and LLPs and their directors and action will be required to ensure that these entities are compliant and can continue to be run effectively.

The key provisions are expected to be as follows:

Identification verification will be required for all existing directors, persons with significant control (PSCs or RLEs) and those delivering documents to the Registrar. Identification can be verified either:

• Using the Companies House verification system which links the photograph of the person’s face with their identification document, such as a passport or driving licence. The system checks the documents for authenticity and this process is expected to take less than 15 minutes to complete.
• Using an Authorised Corporate Service Provider (ACSP), which is a supervisory body for anti-money laundering purposes which already has obligations to undertake customer due diligence on their clients, such as accountants or lawyers, who have registered for this role at Companies House. For each filing, the ACSP will need to declare that they have obtained all the necessary identification and retain such records in the event that the Registrar requests information in the future.

The guidance states that companies already on the register will have a transition period in which to bring the records up to date, however, it is unclear how long this will be, so steps should be taken as soon as possible to ensure that these new requirements can be met.

Timings:

• For new directors and new incorporations, identification verification must be carried out before their appointment is recorded at Companies House
• PSCs and RLEs must be verified within 14 or 28 days respectively of their appointment.

A few words of warning:

Most importantly, an unverified director may also be prohibited from acting as a director until he obtains verified status.

Failure to comply with these rules is a criminal offence. The Registrar will also have the power to impose civil penalties. In addition, the filings may be rejected and the record will show that the data is “unverified”.

Although this process may appear cumbersome at the outset, once a person has completed the verification procedure, it is unlikely that they will need to go through the verification process again for other appointments or companies unless their details change – more information on this is awaited.

Restrictions on the use of corporate directors

Only corporate directors which have only natural persons – who have each had their identification verified – as directors will be eligible to be appointed. Existing corporate directors will have 12 months to comply or otherwise resign.

Accounting requirements

The government are reviewing the format of accounts for small and micro entity companies to ensure that they are more user-friendly. Both small and micro entities will be required to prepare a profit and loss account as part of their reporting and small companies will also require a directors’ report. Companies will no longer be able to file abridged accounts and additional statements will be needed if the audit exemption is being relied upon.

Restrictions on company names

The Registrar can reject a name if, in the Secretary of State’s view, it may be used to facilitate crime, incorrectly suggests an affiliation with an international body or contains a computer code.

Personal information

The new legislation will enable individuals to apply to have certain personal information suppressed from the public register including residential addresses if used as a registered office address, signatures, occupation, date of birth (recorded pre-10 October 2015), name and sensitive addresses.

By contrast, the legislation will also increase transparency on company ownership by requiring that full names of all shareholders are stated on the register rather than abbreviations being accepted.

LLP and LP reform

As with companies, all members of LLPs and PSCs of LLPs will be required to verify their identifies and failure to do so will be a criminal offence. Other provisions will require LPs to maintain a connection to the UK, providing further information pertaining to the partners and enable the Registrar to deregister LPs which are dissolved, no longer carrying on a business or upon approval of the court.

Increased powers leads to increased fees

The Registrar will be given greater powers to request additional information, reject documents, remove material and share data with law enforcement. These additional powers of the Registrar will result in an increase in Companies House charges for incorporation and annual filings – although no information on this has yet been released.

What can you do to prepare?

You have already taken the most important step by being aware of the upcoming changes. Most companies will not need to do anything at this stage but should be prepared for the verification of directors and PSCs/RLEs in due course.

We will keep a close eye on the progress of the Bill to keep you up to date with any changes to the expected legislation and the timing of its implementation.