UK Economic Crime and Corporate Transparency Act receives Royal Assent | 10 things you need to know about the corporate transparency and limited partnership reforms
Published on 26th Oct 2023
Fundamental changes include ID verification for company directors and beneficial owners, restrictions on the use of corporate directors and increased filing obligations for limited partnerships
The Economic Crime and Corporate Transparency Act received Royal Assent on 26 October 2023. You can read about the background to this bill in our earlier Insight.
In the words of the Companies House Chief Executive, Louise Smyth, the Act represents the "most significant and far-reaching changes to the UK’s company register in over 170 years of history." The measures will be implemented over time so businesses have time to prepare.
Here are the top 10 things you need to know about the corporate and limited partnership transparency changes.
1. Identity verification
Identity verification via photographic ID will be required for all individuals who are registered as directors or beneficial owners (known as "persons with significant control" or PSCs) of UK companies. The same will apply to overseas companies with a registered UK establishment (the formal name for a branch).
Where a corporate entity is registered as a director of a UK company, all the directors of that corporate director will need to be verified.
Where a corporate entity is registered as a PSC of a UK company, at least one individual who is an officer of that entity will need to be verified.
Identity verification will also be required for individual general partners of UK limited partnerships. In the case of a corporate general partner, a named individual managing officer of that corporate general partner must be verified. If the corporate general partner itself has corporate managing officers, a named individual managing officer of every corporate managing officer also needs to be verified.
The aim is that all entities registered at Companies House will have to have at least one fully verified natural person directly associated with them on the public register.
It will only be possible to register an individual director's appointment at Companies House if they have a verified account. The process for PSCs is slightly different in that they will be registerable without verification, but they will be flagged as "not verified". If the PSC does not verify after flagging, they will have committed a criminal offence and also may be liable to civil penalty.
The requirement for identity verification will apply to existing as well as new appointments. The transitional period and details of the verification process have not yet been published, but the likelihood is that this will be an online process.
2. Companies House filings
In future, Companies House will only accept filings from individuals who have had their identity verified and then only in respect of filings for themselves or for their employer. Otherwise, filings will only be accepted from "authorised corporate service providers" or ACSPs.
ACSPs are individuals or firms who are supervised for the purposes of money laundering legislation (including solicitors' firms) and have been authorised by Companies House to make filings. Again, the details of the registration process for ACSPs has not yet been published but we anticipate that we will able to register and act as an ACSP for our clients.
3. Corporate officers
In parallel with the Act coming into effect, the government has announced that it will be using long-held, but previously unused, powers to restrict the use of corporate directors for UK companies.
A corporate director will have to be an entity with legal personality and all of the directors of the corporate director will themselves have to be natural persons whose identities have been verified. The government had previously indicated that overseas corporate directors would be prohibited, but it is now not clear whether that policy will be taken forward.
The corporate director changes will apply to existing as well as new companies, though existing corporate directors will have a 12 month transition period. Businesses that use corporate directors, particularly ones registered in an overseas jurisdiction, will need to prepare to change their board composition and authorities.
The same restrictions will not apply to corporate members of limited liability partnerships (LLPs) or corporate general partners of limited partnerships (LPs), who may continue to have non-natural officers. Instead, corporate members and corporate general partners will have to provide details of a natural person in a management position who will need to be a verified person.
Finally, on the subject of directors, in a change from the current position, a person will not be able to act as a director unless their identity is verified and notice of their appointment is given to Companies House. Failure to file the form will be a criminal offence, but the contravention does not affect the validity of the person's acts as a director. This will mean that careful thought will need to be given to the practice of appointing directors at the start of or during a board meeting with the intention of them participating in the business of that meeting.
4. New role and powers
Alongside the existing role of registering company information and making it available for public inspection, the registrar will be given a new specific role to promote and maintain the integrity of the register.
This new role will be accompanied by new powers for Companies House to query and seek corroboration of information before it is entered on the register. Where the query is not answered satisfactorily, a range of sanctions (not yet specified) may be imposed. The government is intending to produce guidance to help companies understand how and why the querying power may be used and to provide examples of appropriate evidence.
Companies House will also be able to remove more material from the register than is currently permitted. However, some material submitted to Companies House has legal consequence once filed – such as a reduction of capital by solvency statement – so the removal of such material will remain a matter for the courts.
5. Company registers
The Act abolishes the requirement for a company to keep its own register of directors, register of directors' residential addresses, register of secretaries and register of people with significant control. This information will only need to be held centrally at Companies House.
As a result, the only register that a company will need to main is the register of members which records shareholder information. Companies will need to collect more information on their shareholders than presently required for the register of members and will have to provide a one-off list of shareholders to Companies House to be updated annually as part of the confirmation statement process.
Information about beneficial holders will not need to be recorded on the register of members, but the government has committed to a consultation by the end of 2023 on how to improve the transparency of shares held under trust and nominee arrangements.
6. Requirement for a registered email address
Companies and limited partnerships will need to have a registered email address, in the same way as they have a registered office. It must be set up so that, in the ordinary course of events, emails sent to it by the registrar would be expected to come to the attention of a person acting on behalf of the company or limited partnership.
Existing companies and limited partnerships will need to provide a registered email address with their first confirmation statement after the relevant section of the Act comes into force.
7. Limited partnership changes
The Act makes specific changes which apply to all UK limited partnerships (including all existing and new limited partnerships).
The most significant changes can broadly be summarised as follows: (i) requiring a connection with the UK; (ii) increasing registration and transparency requirements; and (iii) enabling Companies House to deregister limited partnerships.
Sanctions may apply to non-compliance with these new requirements, which will generally be liability to fines but may also include liability to imprisonment in the cases of either knowingly making false statements to Companies House or failing to disclose accounts to HMRC (see point 9 below).
8. Connection with the UK
In addition to the new requirement for a registered email address, each limited partnership will need to have a UK registered office which must be notified to Companies House. This change may therefore have particular impact on limited partnerships with non-UK places of business.
The UK registered office must be one of (i) the limited partnership's principal place of business; (ii) the general partner's registered office or residential address (if the GP is an individual); or (iii) an address provided by an ACSP.
There will be a six month transition period for the notification of this address to be made to Companies House.
9. Registration and transparency requirements
For the first time, the general partner of a limited partnership will be required to submit to Companies House an annual confirmation statement which confirms that the information held about the limited partnership on Companies House's register is correct.
This annual confirmation statement will be in addition to, and will not replace, existing requirements to inform Companies House of certain changes to the limited partnership (such as changes to its partners) shortly after they occur.
There are changes in the Act to increase the transparency around the partners of a limited partnership. General partners will be subject to the identity verification and corporate officer changes set out in points 1 and 3 above.
Additionally, Companies House will need to be provided with further information about both general partners and limited partners (not all of which will be made available for public inspection). This includes, for each partner which is a legal entity, its principal office, legal form and governing law, and for each partner which is an individual, their nationality, date of birth and usual residential address.
Again, these requirements are subject to a six month transition period for existing limited partnerships.
The Act also gives HMRC powers to require the general partner to prepare accounts for the limited partnership, and to disclose these together with an auditor's report to HMRC. As the Act does not specify the extent to which HMRC might potentially use these new powers, we would expect further regulations and/or guidance on these HMRC powers to follow.
10. Deregistration of limited partnerships
Previously it was possible but not legally necessary to notify Companies House on the winding-up of a limited partnership. However, the general partner will now have to notify Companies House when a limited partnership has been dissolved and, subject to certain exceptions, the general partner will be further legally required to wind up the limited partnership or take all reasonable steps to ensure that its affairs are wound up.
Companies House will be enabled, as it has not been before, to deregister limited partnerships which (i) have been dissolved or are no longer carrying on business; (ii) are subject to a court determination that deregistration is in the public interest; or (iii) in certain circumstances where the general partner has not complied with the Act (including complying with some of the new requirements set out in points 8 and 9 above).
Osborne Clarke comment
These are profound changes to the corporate law landscape in the UK and will affect all of the 3 million plus entities registered at Companies House.
Much will depend on how the Act is implemented by Companies House, which has been planning for the new provisions since the bill was first announced in early 2022. Businesses should keep an eye out for the implementation timetable and Companies House guidance and speak to their usual company secretarial and fund administration teams to ensure a smooth transition.