New law: Companies and their directors and ‘persons with significant control’ face major changes to company law

The Russian invasion of Ukraine and the subsequent public outcry at perceived abuse of the UK by Russian oligarchs as a place to shelter, and possibly launder, cash and assets has given the government an incentive to accelerate the introduction of company law changes aimed at greater transparency, although it is not yet known when they will come into force.

Its proposals, set out in a 124-page White Paper ‘Corporate Transparency and Register Reform White Paper; Policy overview and response to final consultations’, apply not just to companies but in many instances to Limited Liability Partnerships, Scottish Qualifying Partnerships and unregistered companies too. However, the focus here is on changes affecting limited companies.

A major reform will be a requirement for Companies House to verify the identity of the following (or have it verified by a verified agent) and create a ‘verification account’ for each of them:

• All individual directors (in legal jargon, ‘natural persons’).
• Where a UK company is permitted to have a corporate director (which, under the new rules, will be restricted) all directors of that corporate director (who will all have to be individuals).
• All individual PSCs.
• Where a PSC is a ‘relevant legal entity’, all its directors or equivalent.
• Presenters of information to Companies House.
• All directors of an overseas company.

New directors and PSCs cannot be registered until they are verified, and directors and PSCs already registered at Companies House will have a transitional period within which they must verify their identity to Companies House.

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’.

The primary method of verifying identities will be by linking a person to an authorised identity document of theirs, using a digital system. In effect, a photograph of an individual’s face and an identifying document will be submitted online and compared digitally. The government says setting up a verification account will take a ‘matter of minutes in the vast majority of cases’.

Once verified, each individual will have one account so that searchers can see all that individual’s different roles in different companies (and other entities on the register).

Further changes include:

• Allowing Companies House to query and check information submitted to it before putting it on the public record, and existing information already on it, if the information appears to be connected to fraudulent, suspicious or malicious activity or activity which might otherwise impact upon the integrity of the register. The Paper gives the examples of ‘phoenix’ companies to defraud creditors, or where a proposed company name may be part of a campaign to target another company, organisation, or individual.
• Widening the list of words that must be justified before they can be used in a company name – for example, to include words in other languages and abbreviations such as ‘Uni’ for University. The list will also be extended to include specified characters and punctuation.
• The ability of Companies House to amend or remove information already on the public record, including on its own initiative, will be extended.
• Mandatory digital filing, and iXBRL ‘tagging’, will be introduced for accounts submitted to Companies House, so they can be easily compared with online tax returns for consistency.
• The option for small and micro companies to file abridged and filleted accounts will be removed. All small companies will be required to file a profit and loss account, and all other constituent parts of their accounts, including a directors’ report, so they will actually file what they prepare for members/HMRC. Micro-entities will also have to file both a balance sheet and profit and loss account, and 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 explore options to enable companies to file their financial information for different agencies and departments at the same time, once a year.
• Rules allowing companies to shorten their accounting reference periods will be changed.
• The ability to keep certain information on the registers confidential – to ‘suppress’ it – will (given the rising instances of identity theft, domestic abuse, etc.) be extended. 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, such as a women’s refuge’s address, will be introduced.
• Companies House powers to share data (whether filed data, or data given in the course of verifying a person’s identity) with law enforcement agencies, regulatory bodies and insolvency practitioners in certain circumstances will be extended.
• Companies House will also have extended powers to check data submitted to it against data held in other databases, such as the Passport Office and/or DVLA databases.

Operative date

• To be announced

Recommendations

• Companies, their directors and PSCs should plan how they will comply with the new requirements, particularly relating to verification of identities.
• Companies, directors and PSCs should also consider the impact on the business – given, for example, that more information on individuals and the company’s financial affairs will be available to the public, and can be shared with law enforcement and others.