Reforms to UK company law bring fresh requirements for companies and individuals

The UK’s new Economic Crime and Corporate Transparency Act (ECCTA) could be viewed as the most significant change in the country's corporate criminal liability law since the Companies Act 2006 was introduced over 15 years ago.

The 2023 ECCTA, which received Royal assent in October, brings in enhanced powers for Companies House, enabling it to query and reject filings should insufficient information be provided. This is a further sign that the UK government continues to introduce developments to the UK’s legislative strategy to fight economic crime, promoting better transparency for UK corporate entities.

It follows the ECTEA 2022 (The Economic Crime (Transparency and Enforcement) Act), which saw the Register of Overseas Entities (ROE) introducing provisions for those who already own or wish to own land in the UK through non-UK entities. 

What are the changes?

Simply put, Companies House will no longer act as passively as it once did. The ROE has seen this in abundance, and critical changes such as the Failure to Prevent Fraud Offence, reforms to the Identity Doctrine (the Doctrine), more vigorous checks on company names and new rules for Registered Office addresses will see a much more proactive approach to the administrative work that they do.

The Act will focus on the identity of controlling parties of UK corporate entities, allowing a much stronger verification process for the parties involved, including those setting up corporate entities, particularly for directors and People with Significant Control (PSCs). 

Part of the reform will include an update to the current Identity Doctrine, which is described as the legal test for deciding whether the actions and mind of a natural person can be regarded as those of a legal person, which will enhance good governance and accountability of controlling parties and looks to mitigate the risk of false or fictitious information being made public.

Another element of the reforms to Companies House that the ECCTA will deliver is the introduction of identity verification. Any individual, relevant company, and every officer found to be in default of abiding by the identity verification process will be seen as having committed an offence. The identity verification will be done through two methods: direct verification through Companies House and indirect verification through Authorised Corporate Service Providers (ACSP). Soon to be a registered ACSP, Praxis will be able to assist with these new identity verifications.

What other changes does the Act include?

Additional key changes UK corporates should be aware of:

• obligation for a company to ensure that its registered office is situated at an "appropriate address"  and the requirement that all corporates must have a registered email address
• further prohibition of company names
• additional statements will be required to confirm formation for a lawful reason
• disqualification of directors will be possible where there are persistent breaches of filing obligations and identity verification requirements
• UK sanctions may prohibit individuals from acting as directors
• abolishment of the requirement for companies to keep their own register of directors, secretaries, and PSCs. This means that the public will be able to rely on filings at Companies House, the primary source of information for company registers. Contrary to this, the company will no longer be able to rely on Companies House to keep its register of members
• the removal of the ability for small companies to prepare and file abridged accounts and the introduction of software-only filing
• strengthening of transparency requirements for limited partnerships, which provides new powers for the Registrar to deregister limited partnerships should they see fit to do so; and
• additional changes made to the Register of Overseas Entities to include trustees and nominee arrangements coming under enhanced scrutiny. This includes a backward-looking stance which will likely see the requirement for changes made to registered beneficial owners between the ROE go-live date to 31 January 2023 being identified.

What are the risks of non-compliance? 

While non-compliance to these new reforms could result in negative consequences for both companies and individuals, reputational damage, and the risk of association with money laundering are the two key concerns which the UK government are attempting to combat with these reforms. Companies House can also impose civil financial penalties if an individual is convicted of a ‘relevant offence’ under the Act. 

To learn more about the new ECCTA or how Praxis can help you navigate these changes, please contact Joshua.

Please note that this article is intended to provide a general overview of the matters to which it relates. It is not intended as professional advice and should not be relied upon as such. Any engagement in respect of our professional services is subject to our standard terms and conditions of business and the provision of all necessary due diligence. © Praxis 2024