As part of its drive to enhance national security, combat corruption and fraud, and boost enterprise, the UK government has published its Corporate Transparency and Register Reform White Paper (the White Paper) which sets out the government's final position on a range of proposed company law reforms. These include a tightening of the rules on corporate directors, identity verification for directors and others, and an expanded role for Companies House. 

The proposals will be brought in through a further economic crime bill to be introduced into Parliament and supported by operational changes at Companies House.¹

Corporate directors

Currently, under the Companies Act 2006, a UK-incorporated company may have corporate directors, provided it also has at least one director who is a natural person.

Tightening the rules on corporate directors has been on the agenda for some years. Provisions of the Small Business, Enterprise and Employment Act 2015 (that are not yet in effect) provide that every director of a UK-incorporated company must be a natural person. However, they also envisage that secondary legislation may provide for exceptions to this requirement. The scope of these exceptions has been the subject of considerable discussion since 2015, but the White Paper sets out the government's final proposals for legislation. These are:

• Any corporate director will have to be registered within the UK. It will no longer be possible for a corporate director to be incorporated overseas.
• Every director of a corporate director will have to be a natural person. This will provide greater transparency by limiting the shield of anonymity early in the chain of corporate control.
• Any corporate director appointment will be contingent on those natural directors having gone through identity verification (see below).

It will remain the case that a UK company must have one director who is a natural person.

While corporate directors are typically companies, it will continue to be possible for other forms of UK-registered entity with legal personality to act as a corporate director of a UK company (but note the point below in relation to Scottish general partnerships). 

Corporate officers of other entities registrable at Companies House

The White Paper states that there is no intention to apply the same restrictions to corporate members of LLPs or corporate general partners of limited partnerships. However, the government will consider whether any further restrictions on the use of corporate members of LLPs and corporate general partners of limited partnerships would help mitigate the risk of abuse, without affecting the legitimate use of these structures. 

Annex 1 to the White Paper, which provides a list of reforms that will be brought forward, indicates there will be a requirement for an LLP to have at least one designated member who is a natural person, though this is not discussed in the main part of the White Paper.

Scottish general partnerships

Annex 1 to the White Paper also indicates that Scottish general partnerships (which, unlike English general partnerships, have separate legal personality) will be barred from acting as a corporate director, a corporate member of an LLP or a corporate partner of a limited partnership. Again, this is not discussed in the main part of the White Paper.

Identity verification

At present, the identity of any individual whose name is filed at Companies House does not need to be verified, making the system open to abuse by those who wish to do so (for example, through the appointment of a fictitious director). The White Paper proposes that all entities registered at Companies House will have at least one fully verified natural person directly associated with them on the register at Companies House. 

Method 

The primary method for identity verification will be photo ID, linking a person through a photograph with an authorised identity document. Once verified, a user will have one verified account for use whenever Companies House verification of their identity is required.

UK-incorporated companies

Every company director who is a natural person will have to verify their identity. It will not be possible for a director's appointment to be registered at Companies House without a verified account. If there is a matching verified identity, Companies House will register the director. If there is no verified identity, Companies House will reject the registration. As at present, failure to register within the permitted time period will result in offences and potential penalties.

Any person with significant control (PSC) over a company will also have to verify their identity. After a company has submitted a PSC registration to Companies House, Companies House will cross-check the PSC with the verified accounts on its database. If the PSC has a verified account, that PSC will be flagged as "verified". If the PSC does not have a verified account and fails to correct the situation within a set period after notification by Companies House, it will flag the PSC as "not verified". This will be an offence and the PSC may be liable to a penalty. The directors or equivalent of any relevant legal entity (RLE) within the PSC regime will also have to verify their identity. 

Limited liability partnerships, limited partnerships and certain Scottish partnerships

Rules equivalent to those for company directors will apply to a natural person who is either a member of an LLP or the general partner of a limited partnership. A corporate member of an LLP and a corporate general partner of a limited partnership will need to have verified directors or a managing officer whose identity is verified. 

PSC/RLE identity verification will extend to LLPs and certain in-scope Scottish partnerships.

Other

Identity verification will also be required in relation to directors of overseas companies and presenters of information to Companies House.

Improving transparency 

In response to feedback that there is insufficient information on the Companies House public register about shareholders and beneficial owners, the government intends to introduce requirements for:

• companies to record the full names of shareholders; and
• private and certain other companies to provide a one-off full shareholder list. 

Additionally, the government will collect and display more information from companies claiming an exemption from the requirement to provide PSC details and more information regarding the basis on which an RLE meets the RLE criteria.

Companies House 

More broadly, 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. The Registrar will have a new role promoting and maintaining the integrity of the Companies House register. In particular, the Registrar will have a new power to query information either before it is placed on the register or post-registration, on a discretionary basis using a risk-based approach.

Related changes will include:

• giving the Registrar enhanced power to remove material from the Companies House register where it impacts on the integrity of the register; 
• making it easier for the Registrar to change the address of a company's registered office, where the Registrar is satisfied that the company is not authorised to use the address or there is evidence that the address does not exist;
• enhancing what is meant by "proper delivery" of filings to include, for example, identity verification where relevant;
• expanding the list of sensitive information that must not be publicly disclosed to include sensitive information that will be collected under the reform measures.

Currently, Companies House has limited powers to prevent a name from being registered or to act if it has been registered. The White Paper envisages that the Registrar may use the new querying power to query a company name (for example, where a name may be part of a campaign to target a company, organisation or individual with whom the applicant has no connection). If the Registrar queries a registered name, and evidence to satisfy that query is not received or is unsatisfactory, the Registrar will also have the power to direct the company to change its name within 28 days, with power to change the name to its registered number (or an appropriate alternative) if the direction is disregarded. As currently, the company would be able to apply to court to set aside the direction.

Improving financial information available at Companies House

The White Paper notes that direct users of Companies House attribute most value to the financial information that is available. The White Paper includes a number of proposed reforms to make this data more reliable, useful and searchable.

• The government will require company accounts to be filed with Companies House in a digital format using the industry standard Inline Extensible Business Reporting Language (iXBRL) and will require the information to be fully tagged. Each financial element within the accounts will need to be labelled so that the tags are machine-readable (making the information easier to interrogate, compare and check).
• The filing options available to small and micro-entities will be simplified. There will be just two options: micro-entity accounts and small company accounts. The options for abridged and "filleted" accounts will be removed. This means that Companies House will receive a balance sheet and profit and loss account for all small companies, including micro-entities. Small companies will also file a director’s report unless they meet the micro-entity thresholds, when they will still have the option not to prepare or file a director’s report.
• Dormant companies will be required to file an eligibility statement with their accounts in which the directors will confirm that the company is not trading and meets the criteria for filing dormant accounts. This is intended to provide the Registrar with additional evidence to take stronger enforcement action for false filings in future.
• While the government has considered whether the time periods for filing accounts should be reduced, there will be no immediate change (on account of the pandemic). However, the government will make it easier to make changes in the future, by enabling this to be done through secondary legislation.

The government will also explore a "file once" approach which would enable companies to file their financial information once a year with the government, instead of making different filings at different times with different government departments (for example, Companies House and HMRC).

Preventing abuse of personal information

In limited circumstances, directors and PSCs can currently apply to have some of their personal information held on the public register at Companies House suppressed from view. The government plans to extend these rights to offer greater protection from fraud and other abuse. 

The government will therefore introduce greater powers to suppress personal information and sensitive addresses from the register where it is appropriate to do so. At the same time, it will ensure that the suppressed information is accessible to those who have a legitimate reason for accessing it. 

More generally, directors will no longer be required to provide a business occupation. 

Data sharing by Companies House

Companies House will be given enhanced powers to share data with law enforcement and other public and regulatory bodies (for example, the electoral commission and anti-money laundering supervisors), when certain conditions are met. 

It will also gain enhanced powers to request and cross-reference data on the register with external data (for example, that held by HMRC and the Insolvency Service). 

Existing discrepancy reporting requirements which apply to regulated professionals under anti-money laundering regulations will be expanded to cover a greater range of information.

Next steps

We expect that the government will introduce the necessary legislation into Parliament as soon as possible and that this will be supported by operational changes at Companies House.

The White Paper acknowledges that, once enacted, companies, directors and others within scope of the reforms will need a transition period within which to comply with the new requirements.

1. Changes at Companies House will also be required to implement the new register of beneficial ownership of overseas entities that own land in the UK. The Economic Crime (Transparency and Enforcement) Act 2022 provides that this will be maintained by Companies House.↩