Hailed as proposing the most significant and far-reaching changes to the UK's Companies House register since it was established 170 years ago, the Economic Crime and Corporate Transparency Bill (the Bill) sets out a range of measures to crack down further on the abuse of UK corporate structures and tackle economic crime.

While parts of the Bill deal with wider aspects of economic crime, notably crypto-assets and money laundering, the Bill is predominantly concerned with the regulation of UK corporate structures. It follows the Economic Crime (Transparency and Enforcement) Act 2022 which became law earlier this year and established a new Companies House register of overseas entities (ROE) that own qualifying real estate in the UK. In-scope entities must now register information about themselves and their beneficial owners at Companies House.

In this note, we look at the key changes in the regulation of UK corporate structures that the Bill will bring in, subject to Parliamentary approval.

Companies House reform

The Registrar of Companies will have a new role promoting and maintaining the integrity of the Companies House register. As a result, the role of Companies House will change from being a largely passive recipient of information to a more active gatekeeper over company creation and the custodian of more reliable data.

In support of this enlarged role, the Registrar will have new and enhanced powers to:

• require additional information in relation to the delivery of documents to Companies House (e.g. to determine whether a document that has been delivered to Companies House complies with the requirements for proper delivery);
• reject documents for inconsistencies with other information held by or available to the Registrar;
• remove material from the Companies House register.

The Registrar will also have new powers, for the purposes of preventing or detecting crime, to analyse the information that Companies House holds, along with more extensive powers for data sharing with law enforcement and other bodies.

The Registrar will be able to meet the cost of investigative and enforcement activities that promote the integrity of the Companies House register, maintain a healthy business environment and combat economic crime through the fees that Companies House charges (e.g. on incorporation of a company).

The Registrar will also gain new powers to impose financial penalties for contravention of a range of provisions in the Companies Act 2006 (CA 2006).

Identity verification

At present, the identity of individuals whose names are filed at Companies House does not (outside the new ROE regime) require verification, making the system open to abuse by those who wish to do so. The move to verification marks a significant shift in approach.

Identity verification will be required for all new and existing registered company directors, persons of significant control (PSCs) and those delivering documents to Companies House.

There will be two options for identity verification: direct verification via Companies House or an indirect route through an "authorised corporate service provider". This is a person who is regulated for the purposes of the UK's anti-money laundering regime and who has applied to the Registrar to become an authorised corporate service provider.

Generally, identity verification will be a one-off requirement, though there may be instances where re-verification is required (e.g. where someone changes their name).

Directors: An individual will not be able to act as a director unless they have verified their identity. A company will have to ensure that an individual does not act as a director unless their identity has been verified. An individual who fails to verify their identity and acts as a director, and a company that fails to ensure that an individual has been verified, will commit an offence. However, the validity of an individual's actions as a director will not be affected.

PSCs: A PSC will need to verify their identity and maintain their verified status as long as they are registrable as a PSC. Any relevant legal entity (RLE) under the PSC regime will need to verify the identity of a relevant officer (e.g. a director) and maintain that person's verified status so long as the RLE is registrable. While, the relevant company will have the option of providing the required confirmation of verification to Companies House, it will not be required to do so. Instead, the Registrar will have the ability to enforce compliance against the relevant PSC and RLE.

Delivery of documents to Companies House: There will also be identity verification requirements for individuals delivering documents to Companies House on their own behalf or on behalf of another (unless in the course of employment by an authorised corporate service provider).

Incorporation matters

The application for registration of a new company will require the subscribers to state expressly that they wish to form the company for lawful purposes. It will also have to include a statement that none of the proposed company's subscribers, officers or persons with initial significant control is disqualified under the directors' disqualification legislation (or that, if they are, they have court permission to act as such).

Where the subscribers are individuals, the legislation will make clear that it is their full forename and surname that has to be included on the memorandum of association.

Company names

The Bill includes further protections against the misuse of company and business names.

Both new and existing companies will be prohibited from adopting a registered name that the Secretary of State considers:

• is intended to facilitate offences or dishonesty or deception;
• suggests a non-existent connection with a foreign government or an international institution; or
• consists of or includes computer code.

Where a person has goodwill in a name, that person will be able to challenge a company's registered name on the basis that the registered name is sufficiently similar to the applicant's name that it would be likely to mislead anywhere in the world (not just in the UK, as at present).

It will also be an offence to use a business name in the UK that suggests a connection with a foreign government or international body, where none exists.

The Registrar will have enhanced powers to change a company's name where a company fails to change its name after having been directed to do so under existing provisions of the CA 2006 or under the new provisions in the Bill. There will also be new anti-avoidance provisions to prevent an officer, member or former member of a company re-using that company's name in connection with another company with which they are also connected, where the first company has previously been directed to change its name.

Registered offices

CA 2006 will be amended to require a company's registered office to be at an "appropriate address". This is an address where, in the ordinary course of events:

• a document addressed to the company, and delivered there by hand or by post, would be expected to come to the attention of a person acting on behalf of the company; and
• the delivery of documents is capable of being recorded by the obtaining of an acknowledgement of delivery.

CA 2006 will also be amended to require a company to maintain an "appropriate email address". This is an email address at which, 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. This will allow the Registrar to communicate with the company electronically (e.g. to provide updates, notices and reminders).

Directors

In addition to the requirement for identity verification mentioned above, other key changes in the Bill include the following.

• It will be an offence for a person to act as a director unless the company has notified the Registrar of the director's appointment. (Currently, the failure of the company to notify an appointment does not result in the director committing an offence.) There will be a defence for directors, who can prove they reasonably believed the company had given notice of their appointment to the Registrar.
• A person subject to UK sanctions (i.e. "designated persons" for the purposes of section 9(2) of the Sanctions and Anti-Money Laundering Act 2018) will not be able to:

• act as a director of a company; or
• be concerned in the promotion, formation or management of a company,

without the leave of the court.

• Where a director is disqualified under UK directors' disqualification legislation, that director will automatically cease to hold office on disqualification. (At present disqualification does not as a matter of law automatically terminate a directorship, though it is a criminal offence to continue to act.) However, there will be no protection from liability if that person continues to act as a de facto or shadow director.
• It will be possible for directors to be disqualified on the grounds of persistent non-compliance with companies filing obligations and directors' and PSC identity verification requirements.

Sections 156A-156C of the CA 2006 already include uncommenced provisions restricting the use of corporate directors. The government has confirmed that these will be brought into force in parallel with the Bill, together with regulations that will set out the more limited basis upon which companies will be permitted to retain or appoint corporate directors in the future. See here for more information.

Shareholders

Private companies will no longer have the option to keep information about their members on the Companies House register instead of maintaining their own register of members.

As with subscriber names (see above), it will be made clear that the name to be included on the register of members in respect of members who are individuals is their full forename and surname (e.g. it will no longer be possible to register just as J Bloggs).

A regulation-making power will give the Secretary of State the power through secondary legislation to change the information required to be included on a company's register of members, to enable the collection of more information about members in the future.

PSCs

In addition to the requirement for identity verification mentioned above, the Registrar will collect and make available:

• more information from companies claiming an exemption from the requirement to provide details of their PSCs, including the reason for the exemption; and
• the conditions satisfied which allow an RLE to be recorded as a PSC.

Register of directors etc.

There will no longer be a requirement for companies to maintain their own register of directors, register of directors' residential addresses, register of secretaries or PSC register.

Annual confirmation statement

The annual confirmation statement will require the company to confirm that the intended future activities of the company are lawful.

As a one-off, in the first confirmation statement after the relevant section of the Bill comes into force, companies whose shares are not publicly traded will need to provide the names and addresses (as they appear in the company's register of members) of all their members. Publicly-traded companies will have to provide names and addresses of members holding at least 5% of the issued shares of any class of the company.

Preventing the abuse of personal information

The Bill includes new measures that will allow those whose details appear publicly on the Companies House register to apply to have certain personal information suppressed from public disclosure. These measures will extend the current limited instances where individuals can apply to have information on the Companies House register suppressed from public view.

Company accounts

The Bill streamlines the existing filing framework for small and micro-entity companies. The changes include:

• making filing obligations for small companies and micro-entities clearer;
• requiring small companies to file a profit and loss account and a directors' report;
• requiring micro-entities to file a profit and loss account;
• removing the option for small companies to file abridged accounts; and
• requiring an eligibility statement for companies claiming an audit exemption.

Limited partnerships

Part 2 of the Bill deals specifically with limited partnerships (LPs), including Scottish LPs. An LP, unlike a general partnership, must be registered at Companies House. The Bill amends the Limited Partnerships Act 1907 to modernise the regulatory regime for this type of partnership and tackle abuse.

Key changes include the following.

Information: Generally, it will be necessary for an LP to file more information at Companies House, both on initial registration and on an ongoing basis. That information will generally have to be submitted by an authorised corporate service provider (see above). This will include an annual confirmation statement.

General partners: There will be some new requirements in relation to general partners. A general partner that is a legal entity will have to include amongst its managing officers an individual who is notified to Companies House as its "registered officer". Any corporate managing officer of a general partner will need to provide a "named contact". Where there is a new general partner, it will be unlawful for that partner to take part in the management of the business if their appointment is not properly notified to Companies House. A person who has been disqualified from acting as a director of a UK company will not be permitted to act as a general partner or a registered officer.

Registered office: An LP will have to maintain a registered office in the part of the UK in which the LP is registered. As with companies (see above), this will need to be an "appropriate address" and an "appropriate email address" will also need to be supplied.

HMRC: The Bill enables HMRC to require the general partners of an LP to prepare and deliver to it, on request, accounts prepared under regulations to be made by the Secretary of State. The Bill does not set out the scope of these regulations. However, the explanatory notes to the Bill give as examples where there is reason to believe that an LP may have undertaken fraudulent activity or HMRC receives a request from law enforcement bodies on specific LPs.

Limited liability partnerships

The Bill does not cover limited liability partnerships (LLPs). However, the government has confirmed that secondary legislation will be passed in due course which adapts company law, as amended by the Bill (including identity verification), to the law governing LLPs.

Next steps

The Bill is currently at an early stage in its journey through Parliament. In terms of timing, Companies House has indicated that, subject to Parliamentary approval, it expects the Bill to receive Royal Assent in the spring of 2023. Thereafter, the government will introduce the supplementing secondary legislation that various clauses in the Bill provide for. Companies House is already working behind the scenes to prepare for the changes that the Bill will require to its systems and processes.

For existing companies, directors, LPs and others affected by the new measures, transitional rules in the legislation will provide for transition periods within which to comply with the new requirements.