On 18 September 2020, the government published their full response to the 2019 Corporate Transparency and Register Reform Consultation. The report details reform proposals to increase corporate transparency in the UK and give businesses and individuals’ greater confidence when entering transactions with companies by increasing the reliability of the data showing who owns a corporate entity.
The proposals focus predominantly on modernising the incorporation process of a company via Companies House, the framework of which has remained largely unchanged for 150 years, whilst working in collaboration with government and private sector bodies such as the National Crime Agency to prevent companies being set up to conceal fraud and launder money.
Summary of the proposals
The proposals include, amongst others:
Identification checks
- Introduction of compulsory identity verification for all proposed directors, persons of significant control, general partners in limited partners, designated members in LLPs and those who file information on behalf of a company
- Such persons will not be appointed until their identification has been verified by a 24/7 digital online verification process.
Accounts
- Potential reduction of the accounting reference period meaning accounts may need to be filed more frequently
- Review of the exemptions that allow some companies to submit micro or dormant accounts.
Partnerships
- Develop a process under which limited partnerships may be struck off following a court order.
Company Names/Directors occupation
- Introduction of measures to enable Companies House to have increased power to reject a company name before it is registered and powers to remove a company name post-registration
- Directors will no longer be required to list their occupation and for those already listed there will be a process introduced to redact this information shown on the public register.
Other information
- Introduce a statutory measure to enable the Registrar of Companies to have more authority to scrutinise the information contained on the register
- Make all dissolved company records since 2010 freely available.
What are the benefits of these proposals?
The report details the potential wide economic benefits of the proposals as a result of more accurate information on the registers of UK companies. Some of the changes include improved transparency, which should not only increase trust by consumers and other businesses in dealing with companies but may also be beneficial to the company when it comes to raising finance. Where there is greater transparency, it is suggested there will be faster decisions by lending institutions who should have greater assurance as to the financial status of a company and who is running it in the background and processes will be more streamlined through digitalisation.
Additionally, there will be cost saving benefits for UK law enforcement, as there will be faster access to more reliable information and better tracing of those who incorporate companies with fraudulent intentions.
Is there likely to be increased administrative burden on companies?
It is intended that the reforms should not increase businesses’ administrative burdens nor adversely impact the speed at which companies are incorporated with most companies still being incorporated within 24 hours of the application to Companies House. However, the Registrar will no longer be obliged to accept any application to register a company.
Furthermore, in addressing the potential administrative burden stemming from the compulsory identity verification, the report provides that this will not apply to shareholders, some of whom will not have a controlling interest in the company.
What next?
The government intends to publish a further report detailing how the proposals shall be implemented. Subsequently, depending on funding, it will introduce legislation to implement the reforms whilst Companies House will develop a system to incorporate and implement the same. Testing for the system is set to take place at the end of the 2020/2021 financial year.
