The Economic Crime and Corporate Transparency Bill ("the Bill"), which is currently making its way through Parliament, is set to shake up the role and powers of Companies House in the biggest reforms to it for 170 years. In an attempt to reduce the use of companies in economic crime, the Bill is introducing a raft of measures such as identity verification requirements for company directors and for persons with significant control (PSCs) and an annual confirmation that a company has a lawful purpose.
The Bill also heralds some significant changes in the way companies engage with Companies House, whether themselves via a director, company secretary or other employee tasked with keeping CH records up to date, or through an external legal adviser.
We look here at some of the key points in the Bill which will impact companies.
Extension of CH powers
Companies House will have a more proactive role as gatekeeper for company information and will get new powers to reject inconsistent information and request more information from companies. It will be able to rectify the register without involving the courts - a welcome proposal – and will also get new powers to impose civil fines on non-compliant companies or individuals.
Incorporating a company will involve the subscribers confirming they have not been disqualified as directors and that the company is being formed for a lawful purpose. The first directors will also have to have their identity verified (see below for details of ID verification for all directors). There is speculation that the incorporation fee will be increased but there has been no official comment on this yet.
ID verification for directors
Individuals will have to have their identity verified in order to act as a director; failure to have been ID verified will not, however, invalidate directors' acts. All prospective directors will need to have their identity verified before notifying Companies House of their appointment. Existing directors will have to be ID verified by the time the company submits its first confirmation statement after the legislation comes into force.
As yet, there is no detail on how identities will be verified other than it will be possible to do so via Companies House' own system (yet to be revealed) or through an "Authorised Corporate Service Provider", which will need to be supervised for anti-money laundering purposes and to apply to become one.
ID verification for PSCs
The identity of individual PSCs will need to be verified in the same way as directors. Where the PSC is a company or other entity, then the identity of one of their officers must be verified. PSCs will need to maintain their verified status and failure to comply would be a criminal offence, punishable by a fine. The company can verify the identities of its PSCs but it will be the PSC's ultimate responsibility to do so and Companies House will have powers to force PSCs to confirm ID verification.
More information needed
The Bill requires all companies to provide an 'appropriate' email address to Companies House – this won't appear on the public register but failure to do so will be an offence. Companies will also need to make sure their registered office is at an 'appropriate address'. In both cases, 'appropriate' means that the email or correspondence (sent by post or delivered by hand) will come to the attention of someone acting on behalf of the company.
The full names of all shareholders will need to be entered on the Register of Members, in an attempt to increase transparency. This could be an administrative burden for companies, especially where there are shareholders whose details have been lost.
Annual confirmation statement
A company's first confirmation statement after the legislation is in force will need to include a full shareholder list, the company's registered email address (see above) and confirmation that its directors have all had their identities verified, Going forward, the confirmation statement will require an annual statement that the company has a lawful purpose and that its principal business activity remains the same (as evidenced by its SIC code).
Delivery of information to Companies House
The Bill tightens up who can deliver information about a company and essentially will require anyone submitting information to Companies House to have their identity verified and confirm they have authority to file on behalf of the company. Authorised Corporate Service Providers will also be able to file on behalf of a company, provided they have permission from the company to do so and the individual making the filing confirms they are an employee acting in the course of their employment with the Authorised Corporate Service Provider.
The Bill is likely to be amended during its legislative passage and much of the detail, for example how ID verification will work, will be in regulations. We are monitoring the Bill's progress and will be publishing updates over the coming months.
In the meantime, please contact Emma Greville Williams or your usual Brodies Corporate team contact for more information on how the proposals may impact you.