Proposed Reform of Companies House

The Economic Crime and Corporate Transparency Act 2023 (ECCTA) which aims to increase the transparency of UK companies, received Royal Assent on 26th October 2023. A significant part of the ECCTA is a transformation to the role and function of Companies House. This will significantly impact the information companies are required to file.

Companies House has to date been largely a passive administrator of company information and because of this there has been growing concern about the accuracy of the companies register. The objective of reform is for Companies House to take on a more active role in promoting and maintaining the integrity of the register and for there to be more reliable data on companies and the people behind them. To do this, the Registrar has been given a wider array of powers to query and investigate the information supplied to it and to amend or remove information on the register.

Key points to note for SME private companies:

• Identity verification

At present, the identity of any individual whose name is filed at Companies House does not need to be verified. New identity verification measures will be introduced. Anyone setting up, running, owning, or controlling a UK company (or LLP) will need to verify their identity with Companies House. This includes anyone else submitting filing information on a company’s behalf (such as a company secretary). All new and existing directors, members of LLPs, Persons with Significant Control (PSCs) and directors of Relevant Legal Entities (RLEs) will be required to verify their identity. Directors, (LLP members) and PSCs who do not verify their ID will commit a criminal offence and/or incur a civil penalty. Companies that have an unverified director will also commit an offence. 

• New Directors

There will be a prohibition on new directors acting where their appointment has not been notified to Companies House within 14 days of appointment and for so long as the notification remains outstanding.

• Query Information, Remove & Change Information

Companies House will be given new powers to query information on the register either before it is placed on the register or post-registration. This will include the power to query erroneous, anomalous, or suspicious filings (including company names) and reject them if warranted. Companies House will no longer be obliged to accept documents that are delivered if there is a reason to query the information provided. Companies House will also have the power to remove material more swiftly and in wider circumstances than is currently the case. Companies House will also be able to require all information to be filed electronically.

These increased powers of the Registrar are significant. The onus will be on companies to ensure that all relevant documents and information are properly supplied and delivered, or run the risk that the Registrar will query or reject documents and potentially jeopardise a transaction where time is of the essence. The Registrar will have the power to require more information before accepting a filing should it deem it necessary. This means there is an increased risk of documents being rejected due to some perceived inconsistency with existing information or where the Registrar determines that information provided is insufficient or deficient. In addition, it is currently unclear whether the removal of material may include previously registered material and therefore whether this may result in for example, a previously registered capital reduction, becoming void. Companies House has indicated that it will use these powers with discretion and apply a risk based approach with priority being given to those cases which present the biggest risks to the integrity of the register.

These increased powers are however a significant deviation from its previously passive stance of generally uploading whatever information was provided to it. Therefore, it is important that filings are done correctly and not just as an afterthought. 

• Data Sharing

Companies House will have extended powers to check data submitted to it against data held in other databases, such as the Passport Office. The Registrar will also be empowered to proactively inform security agencies of potential wrongdoing and share relevant data (rather than on request as now).

• Corporate Directors

The proposed long-standing restriction on the use of corporate directors will finally be introduced. A company can currently have any number of corporate directors as long as one is a “natural” director. To increase transparency, a company will only be able to retain and appoint a corporate director if all the corporate director’s own directors are natural persons; those natural persons are, before the corporate director is appointed, subject to the identity verification process; and all corporate directors must be UK companies or registered entities, overseas corporate directors will not be allowed.

• Lawful Purpose and Transparency of company ownership

New company incorporation requirements will include a statement by subscribers that the company is being formed for a lawful purpose. A new statement will also be included in the annual confirmation statement that the company's future activities will be lawful. 

Private companies will be required to provide a one-off full shareholder list to Companies House. 

• New Email contact address and registered office address to be "appropriate"

There will be a new requirement for companies to provide Companies House with an email contact address.

There will also be a new requirement for a registered office address to be an "appropriate address", i.e. one at which, in the ordinary course, a document addressed and delivered to the company would be expected to come to the attention of someone acting for the company and where the delivery can be recorded by obtaining an acknowledgement of delivery.

• Changes to the rules on company registers

Companies will be required to keep their own register of members but there is to be an abolition of the requirement for companies to keep their own registers of directors, directors' residential addresses, secretaries and people with significant control.

• Company and business names

There will be new protections against the misuse of company and business names.

• Prevent abuse of personal information

Individuals will have greater rights to ask for personal information to be suppressed and hidden from public view.

• Streamlined filing framework – Accounts 

It is intended that all information will be filed digitally. Filing options available to small and micro companies will no longer include “abridged” and “filleted” accounts. These companies will be required to file a full balance sheet and profit and loss account. Small companies will also need to include a directors’ report (for micro entities this will be optional).

Timing for Implementation of reforms

The ECCTA will need implementing secondary legislation before it is in force. Many of the changes will also require significant development and upgrades to Companies House systems and procedures. The ECCTA will therefore take some time before it is fully in force and will be implemented in phases to give both companies and Companies House the chance to prepare. Early implementation of certain measures takes effect from 4th March 2024.

Fees

Companies House fees increased on 1 May 2024. Fees are set on a cost recovery basis which means that they must cover the cost of the services Companies House delivers. A list of these new fees can be viewed here.