Economic Crime and Corporate Transparency Act 2023: the company law dimension

In this article, we explore the various changes the Act will make to UK company law and what it might mean for you.

When do the changes take place?

Although the Act is now law, the changes will not take effect immediately. Instead, they will be rolled out over the course of a year or more through a series of commencement orders under a government implementation timetable.

We have little detail on that timetable at this stage. The Government will release more detail on implementation in due course.

Identity verification

In perhaps the most significant change to company law, the Act introduces mandatory identity verification (IDV) for directors and persons with significant control (PSCs).

An individual will be unable to become a director of a UK company unless their identity has first been verified. It will be impossible to incorporate a new company unless its first directors have been ID-verified.

Existing directors will also be required to verify their identities. It will be a criminal offence for an individual to act as a director while their identity is unverified. A company will also commit a criminal offence if it allows a director to act while unverified.

Individual PSCs will also be required to verify their identity. A PSC that is a legal entity (registrable relevant legal entities, or RRLEs) will be required to nominate one of its managing officers who is an individual and whose identity is verified (which, in turn, means an RRLE will be required to have at least one managing officer who is a natural person).

An individual will be able to verify their identity either through a central facility provided by Companies House or by using an authorised corporate service provider (see below).

At this stage, further details are required about how exactly IDV will operate. We anticipate that it will adopt a similar approach (in terms of risk-based approach, documentary evidence and record-keeping) to customer due diligence under existing money-laundering legislation.

What should you consider doing?

• Identify existing directors who will need to undergo IDV and inform them. Encourage them to identify documentation now that is likely to assist in verifying their identity. This might include passports, driving licences, birth or marriage certificates, bank statements and utility bills.
• Identify any individuals who might wish (or who may be asked) to become a director of a UK company in due course. Consider identifying similar documentation for these individuals.
• Inform any individual PSCs that they may be required to undergo IDV in due course. Encourage them to identify documentation now that is likely to assist in verifying their identity.

Delivering documents to Companies House

At present, certain documents to be delivered to Companies House must be signed by specific persons. However, anyone is able to deliver documents to Companies House.

Under the changes, the range of persons who can file documents at Companies House will be significantly curtailed. Only ID-verified individuals and authorised corporate service providers (ACSPs) will be permitted to deliver documents.

Precisely who will be able to deliver a document will depend on whether they are delivering the document on their own behalf or on behalf of some other individual or firm.

Importantly, a company or limited liability partnership (LLP) will only be able to file documents through an ID-verified director, company secretary or employee or by using an ACSP.

ACSP status will be available only to persons who are currently regulated by money-laundering legislation. This includes auditors, insolvency practitioners, external accountants and tax advisers, independent legal professionals, and trust or company service providers. We expect many, if not most, eligible organisations to apply for ACSP status, as filing documents at Companies House is often critical to the advice they provide.

As currently drafted, the legislation creates potential difficulties for larger or more complex groups that carry out filings through a central company secretariat function, as the members of that cosec function will only be able to file on behalf of the company that employs them.

However, the government has the power to expand and alter the list of persons who can file documents. We hope they might choose to use this flexibility to expand the list.

What you should consider doing

• Smaller organisations – Consider who will conduct filings at Companies House when the regime comes in. If the company has a statutory secretary who is an individual, consider asking them to prepare to verify their identity in due course so they can make filings. If it does not, consider appointing one. Alternatively, the organisation could appoint an ACSP in due course.
• Larger organisations with centralised filing teams – Await further details on the final position. However, as a contingency, consider whether to appoint an ACSP in due course. Consider also asking the members of your cosec function to prepare to verify their identity in due course so they can continue to make filings.

Registered office and email address

A UK company will need to ensure that its registered office is located at an “appropriate address”. This means somewhere where documents can be expected to come to the attention of someone acting on behalf of the company and where delivery can be formally acknowledged.

For many (if not most) companies, these criteria will already be satisfied. However, companies that currently use a PO box or other unstaffed address may need to move their registered office to a different address.

Companies House will be able to force a company to change its registered office address if it is not an appropriate address.

A UK company will also need to ensure it has a registered email address. This must be an address to which Companies House can send emails and reasonably expect them to come to the attention of someone acting on behalf of the company. The email address will not be publicly available.

What you should consider doing

• Review your existing registered office address to ensure it meets the new criteria. If it does not, identify a new address that does. If easier, consider engaging a company services provider which offers a registered office and document redirection service.
• Identify a suitable email address to be used as the company’s registered email. This should be an address which is actively monitored so that emails can be picked up and responded to. Consider whether this should be the address of some individual (such as the company’s secretary) or an address accessible by a wider range of people (such as all the directors and, possibly, other employees) so that emails are picked up during times of holiday or absence.

Certain internal registers will disappear

The Act will remove the requirement for companies to keep four internal registers:

• Register of directors
• Register of directors’ residential addresses
• Register of secretaries
• PSC register

Instead, companies will simply file details of their directors, secretaries and PSCs at Companies House. The general public will rely on this central record.

The period for making filings for directors and secretaries will remain 14 days from the date of appointment, resignation or change in details. For PSCs, the deadline will be 14 days from the date on which the company receives confirmation of the details it needs to file at Companies House.

To ensure the central record of directors remains up to date and accurate, the Act will make it an offence for an individual to act as a director if their appointment has not been notified to Companies House within the 14-day deadline. Companies will need to bear in mind the new provisions restricting who can file documents at Companies House (see above).

These changes do not affect other internal registers, such as a company’s register of members, its register of debentures or its register of disclosed interests in shares. These will continue to exist.

The changes also do not affect the fact that a person becomes a director or secretary once they are formally appointed, nor that they cease to hold office on resignation or automatically on removal. The notification obligation remains only a notification obligation.

The Act doesn’t state what should happen to companies’ existing internal registers once the changes take effect. We expect regulations to set out transitional provisions in due course. However, companies may want to continue to keep non-statutory registers in some cases as a matter of good record-keeping.

What you should consider doing

• Ensure all director, secretary and PSC filings are up to date in advance of the abolition of these internal registers.
• Consider what internal records the company may wish to keep once the requirement for statutory registers disappears. Companies may still need to provide evidence of their officers’ appointments and removals to certain counterparties, such as lenders, potential acquirers. This might include board minutes or internal, non-statutory registers.

Other changes

• The Act introduces new restrictions on company names. A company will not be able to adopt a name which is intended to facilitate a criminal offence involving dishonesty or deception or contains computer code. A company will require government consent to adopt a name that suggests a connection with a government outside the UK or an international organisation.
• The Act modifies the information a company must keep on its members (for most companies, shareholders). This includes any changes in a member’s details, as well as the date on which those changed. Members will be under a statutory duty to supply these details to the company.
• It will not be possible to appoint an individual as a director if they are subject to a disqualification order or undertaking. The person making the filing will need to confirm, when doing so, that the individual is not disqualified.
• Small companies should pay attention to the changes to preparing and filing accounts. All small companies and micro-entities will be required to file their profit and loss account. Small companies will also be required to file their directors’ report. The government will be able to specify when a small company’s or micro-entity’s profit and loss account will remain private.
• Where a company qualifies for an exemption from audit, its balance sheet will need to state not only that it qualifies for the exemption, but also why it qualifies.
• There will be greater potential to protect personal information. Whilst the details are yet to be confirmed, it should be possible, in certain circumstances, to suppress an individual’s residential address from view where it has been used as a company’s registered office, and to protect a member’s sensitive details from view on an inspection of a company’s register of members.
• Companies House will gain greater powers to scrutinise, question and reject information delivered to it, as well as to raise enquiries with people.
• The government will be able to require persons who carry on business in the UK to carry out discrepancy reporting. These persons would need to collect specific information on persons with whom they do business and report any discrepancies between that information and the public record at Companies House.

Next steps

We now await further details of the Government’s proposed implementation timetable. We will report in more detail on specific changes, and what they mean in practice, as the picture becomes clearer.

Access the Economic Crime and Corporate Transparency Act 2023