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Companies House Consultation: Checking the identity of who’s setting up, managing and controlling

In May 2019, a consultation document was issued proposing significant changes to the responsibilities and powers of Companies House. Last week, we introduced this topic and discussed the reasons for the proposed changes, what the consultation covered and how it could affect you. This is the second in a series of articles which will examine the changes suggested by the Government and the potential effect they may have on private limited companies.

This article will focus on the proposed changes to the way Companies House currently verifies directors, people with significant control, presenters and shareholders of companies held on the register.

What are the Proposed Changes?

Currently Companies House accept and process new information to the Companies Register without completing any checks to verify whether people are who they say they are. In most instances, this does not cause any problems. The Government is however aware that this does leave opportunity for criminals to claim to be directors of UK companies and file false information on the register in order to provide a cover for illegal activity.

The objectives of the proposed changes are to deter those who may want to use UK companies for criminal purposes and, as a result, boost trust in the information provided by Companies House.

Who Do the Changes Apply To?

In order to address the issues outlined above and work towards improving trust and reliability in the information held on companies, the Government is proposing to introduce verification checks for:

  1. directors;
  2. people with significant control (PSCs); and
  3. presenters.

The consultation document raises a further question as to whether, verification checks for shareholders and greater disclosure of information that pertains to them, should also be implemented. However there is no current information as to how this may look.

How Will the Checks Be Performed?

The consultation, which ran from May to August 2019 and is now closed to further comment, sought views on how these checks should be performed. It raised the question as to whether these checks should apply rigidly to all companies. It also sought comments on whether identity verification should be performed solely by Companies House or if it should be undertaken by third parties and then accepted without requiring further checks.

What Will This Mean for Me?

At Incorporation – It is proposed that should any of the prospective directors of a company be unable to verify their identity on incorporation, Companies House would not incorporate the company.

Existing Companies – In instances of individuals looking to be appointed as a director to an existing company, the Government suggests an amendment to the law to make an appointment of a director conditional on identity verification checks.

Corporate Directors – At present the consultation is yet to consider how the proposals will extend to corporate directors.

Existing Directors/PSCs – It is proposed that existing directors and PSCs in active roles will need to have their identities verified in line with the new requirements.

It is also worth noting the consultation recommends that, as well as identity checks being run on incorporation of a company, they would also be carried out throughout its lifetime. It is not currently stated how frequently this would be required.

What Are the Potential Penalties?

Registered Companies – The Government proposes that should a registered company attempt to appoint a person whose identity has not been verified, an offence will have been committed. However, there is no current information as to what the consequences of committing this offence would be.

Unregistered Companies – The appointment of directors is not given legal effect until Companies House registers the incorporation documents. So there would not be any penalties for unregistered companies. However, failure to validate identification once it reached the stage of incorporation would result in non-incorporation of the company.

When Could This Be Implemented?

As outlined in our previous article, the consultation points out that the reforms in terms of systems and staffing at Companies House will not only require primary legislation to be enacted but could take years to deliver.

We will look at the remaining changes proposed in greater detail over the next three articles. Our next article will focus on how the Government is attempting to provide greater information in improving the accuracy and usability of data on the register.

If you have any queries about how the proposed changes to Companies House will affect your business, please contact Andrew Meredith on 01689 877081.

Baxter & Co are registered as Auditors in the United Kingdom by the Association of Chartered Certified Accountants.

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