The Economic Crime and Corporate Transparency Act 2023 (“the Act”) was passed by parliament and received Royal Assent on 26 October 2023 after three years of discussion. This Act embodies significant reforms in a number of company law issues, including company registration, filings and transparency. It makes multiple changes to the Companies Act 2006, Limited Partnerships Act 1907 and some other statutes addressing economic crimes.
One of the primary purposes of the reform is to enhance the integrity and reliability of information filed with the Registrar by UK companies. It strengthens the responsibility of company directors and equivalent incumbents in other types of entity for the timely filing of true, accurate and complete information.
Here are the most important provisions introduced by the Act:
New objectives and powers of the Registrar
The reform intends to turn Companies House from a registry simply receiving documents to a body that actively oversees company registration procedures and contributes to preventing economic crimes. In accordance with the announcement made by Companies House, the Registrar of Companies – in exercising its functions – now must pursue the following new objectives:
- To ensure that any person filing documents with the Registrar does so in compliance with all relevant requirements;
- To ensure the accuracy and completeness of the data contained in the register;
- To ensure that records maintained by the Registrar are not false or misleading to the general public;
- To prevent companies from carrying out illicit activities themselves and from helping others to carry out such activities.
The Act grants Companies House powers to control more actively the company formation process and keep more reliable data. This means that the Registrar will gain new powers to verify, reject or remove information contained in or submitted to the company register. Inaccurate or discrepant information will be subject to the Registrar’s increased attention.
The Registrar will have also powers to question information that is filed and require extra details in case of reasonable doubts or concerns regarding its integrity. Where necessary, Companies House will be able to share information with – and receive it from – law enforcement agencies and other public authorities in a proactive manner.
Incorporation and company names
Subscribers who wish to incorporate a company will confirm that they are establishing the entity for a lawful purpose. Furthermore, the company must reconfirm the lawfulness of its activities in its annual confirmation statement.
The Act provides for more vigorous name checks and imposes additional restrictions on company names. In particular, a company cannot be registered with a name that:
- Can be used to facilitate the committing of any offence, including through deception;
- Creates a wrongful impression that the company is associated with a foreign state authority or with an international organisation;
- Contains computer code.
The Act requires identity verification for the following individuals:
- Company directors,
- Members of limited liability partnerships (LLPs),
- General partners in limited partnerships (LPs),
- Persons with significant control (PSCs) including shareholders,
- The relevant officer of a registrable “relevant legal entity” (RLE), and
- Persons who actually deliver documents to the Registrar on behalf of entities (for example, employees).
Identity verification will apply to all new and existing directors and PSCs. They will need to produce personal identity documents (passports or others) to the Registrar of Companies. At the incorporation stage, a company must verify the prospective directors’ identities before notifying Companies House of their appointment. Existing directors must verify their identity within a transitional period.
People with significant control will need to be verified the same way as directors. If a PSC is not a natural person but a “relevant legal entity” (RLE) then the verification will be made with respect to one of its officers.
The Act allows the verification of an individual’s identity either directly by the Registrar or else indirectly through a corporate service provider (for example, an accountant, a law firm or a company formation agent). The latter, i.e. any such a corporate service provider, must be duly authorised by Companies House and registered with an anti-money laundering authority.
The details of verification procedures will be set out in relevant regulations. It is expected that identity verification will be carried out online through a Companies House digital service. We have already considered the ID verification methods proposed in the Bill (now “the Act”) in February of this year.
Registered office and e-mail addresses
The Act requires companies to ensure that their registered office is at all times located at an “appropriate” address. The address is “appropriate” if a document delivered to the company by hand or by post “would be expected to come to the attention” of someone acting on behalf of the company and an acknowledgement of delivery can record the delivery of documents.
In the same way, a company must have also an “appropriate” e-mail address and provide it to the Registrar. “Appropriacy” in relation to an e-mail address means that the company’s authorised person would be expected to open and read all e-mails sent to the company by the Registrar.
Registers of directors, members and PSCs
The Act abrogates the requirement for companies to maintain their own (i.e. kept within the company) registers of directors, directors’ residential addresses and secretaries, as well as PSC registers. The relevant information will be concentrated on a central register kept by Companies House. In contrast with the above, the shareholders’ data will be held “locally” on the company’s own register of members.
The register of members will need to contain the full names of shareholders (both surname and first name or names, not just initials) and their service – i.e. their correspondence – addresses. If a member is a nominee shareholder acting for another person (such as a beneficial owner), this fact must be highlighted in the register of members and the beneficial owner’s details (full name and address) must be specified. A company will need also to enter the full list of its shareholders in the nearest confirmation statement.
Small companies will digitally submit audited annual accounts to Companies House, except where they use an audit exemption. They will no longer be able to file abridged accounts.
Micro-entities will be required to submit accounts consisting of a balance sheet and a profit and loss account.
Besides companies, the Act pays much attention to Limited Partnerships (LP). The legislation governing LPs has not been substantially modernised for more than a century. The reform applies both to existing and newly established UK LPs. This includes LPs that are registered in Scotland which, as expressly stated in Scottish law, possess separate legal personality. New measures address governmental concerns about the risk of limited partnerships being used as tools for carrying out illegal activities.
The new requirements for LPs include (but are not limited to) the following:
1. The application to register an LP will require far more information about its partners. For example, individual partners will need to specify their full name and any former names, date of birth, nationality, usual residential address, part of the UK (or the country or state outside the UK) in which the individual is usually resident and the service (i.e. correspondence) address of a general partner. Details of partners that are legal entities will include name, principal office, service address, legal form of the entity, its governing law and any register and registration number of the entity (in the case of a general partner).
2. The identity of partners (including officers of a corporate general partner) in a Limited Partnership will be subject to verification.
3. Limited Partnerships must maintain an “appropriate” registered office and e-mail address. To be “appropriate”, an LP’s registered office address must:
- Meet the same requirements in relation to the delivery of documents and acknowledgement as for companies (see above);
- Be situated in the jurisdiction within the United Kingdom in which the LP is registered and:
- Be (i) the address of the principal place of business of the LP or (ii) the usual residential address of a general partner (an individual) or (iii) the address of the registered or principal office of a general partner (a legal entity) or (iv) an address of an authorised corporate service provider that is acting on behalf of the LP.
4. LPs will be required to file annual confirmation statements containing LP’s details and any changes to them with the Registrar.
5. Further regulations will require LPs to prepare audited accounts upon the request of HM Revenue and Customs. This duty will lie with the general partner.
The Registrar may dissolve an LP that fails to meet the new requirements within the prescribed period. The Secretary of State will also have the power to demand the winding-up of an LP to protect the public interest.
What to think about and what to do
Changes introduced by the Act do not require immediate action. Some measures are expected to come into force in early 2024 and some later. To be put into practice, many of them will need secondary legislation and guidance. Entities subject to new requirements will be given a transitional period to ensure compliance with the law.
Since not all necessary details are yet available, companies should at this point analyse the general impact of the new requirements on their affairs. Companies should also inform their persons concerned about the ID verification requirements and begin to prepare additional information, which they may later need to deliver to Companies House.
We are monitoring each step of the implementation of the Act and will keep you informed of progress, providing all necessary support.