The company law aspects of the Economic Crime and Corporate Transparency Act 2023 (ECCTA) – how should you prepare?

The first set of company law changes under ECCTA are due to be introduced on 4 March 2024. We provide an overview of these changes and ECCTA's other significant reforms.

March 2024 changes

Companies House has announced that it plans to introduce the following changes on 4 March 2024 (subject to parliamentary timetables for passing the required secondary legislation):

Greater powers for Companies House

The government intends to transform the role of Companies House from a passive record-keeper to a more “active gatekeeper” of company information. ECCTA therefore introduces new powers enabling Companies House to challenge and reject information that seems incorrect or inconsistent with information already on the register. In some cases, it will be able to remove information.

Companies House will also be able to annotate the register to let users know about potential issues with the information that has been supplied to it, to proactively share and cross-check data with other government departments and law enforcement agencies and to take steps to clean up the register, using data matching to identify and remove inaccurate information.

Stronger checks on company names

New restrictions on the registration of company names will be introduced (including those that contain a computer code, suggest a non-existent connection with a foreign government or international organisation or may facilitate the commission of a dishonesty or deception offence). Companies House will also be able to direct a company to change its name for failure to comply with the company names regime.

New rules for registered office addresses

All companies will be required to have an “appropriate address” (broadly, an address where it can be expected that a document sent to it will come to the attention of a person acting on the company’s behalf and where it is capable of having delivery and receipt acknowledged) as their registered office at all times. PO boxes will not be permitted. A third-party agent's address will still be able to be used, provided it meets the conditions for an appropriate address.

Companies House will take action against companies that do not have an appropriate registered office address (including changing the address, issuing fines or striking a company off the register).

Registered email address

All companies will also be required to provide and maintain an “appropriate” registered email address (ie one where emails sent to it by Companies House would be expected to come to the attention of the person acting on behalf of the company) through which they can be contacted by Companies House. The email address will not be publicly available. The same email address may be registered for more than one company. Companies will have a duty to maintain an appropriate registered email address, in the same way as their registered office address. Failure to do so will be an offence.

New companies will need to give a registered email address when they incorporate. Existing companies will need to give a registered email address when they file their next confirmation statement with a statement date from 5 March 2024.

Statement of lawful purpose

All companies will be required to confirm on incorporation that they are forming the company for a lawful purpose and to confirm annually on their confirmation statement that the company’s intended future activities will be lawful.

Companies House may take action against a company if it receives information that it is not operating lawfully.

What action should I take now?

To prepare for the March 2024 changes, there are practical steps you should be taking now.

• Check that all current records at Companies House are up to date and accurate and make any necessary filings to mitigate against the risk of future filings being rejected by Companies House because they are inconsistent with information currently on the register.
• Consider putting processes in place to avoid filings being challenged or rejected by Companies House (eg a second review to ensure filings are accurate and complete and delivered within statutory deadlines), particularly for those that have legal consequences and are time-sensitive (eg reductions of capital, registration of charges).
• Familiarise yourself with the changes to the company names regime, particularly if you are planning on incorporating a company or carrying out a name change on or shortly after 4 March 2024.
• Ensure your registered office address is an “appropriate address”. If you’re currently using a PO Box as your registered office address, you’ll need to change it by 4 March 2024.
• Identify a suitable email address which can be provided to Companies House and implement processes to ensure the registered email address is actively monitored and communications from Companies House come to the attention of the right person in a timely manner (including during holidays and absences).
• Be aware of the new requirements to provide lawful purpose statements and consider if any internal processes need to be put in place to be able to make these statements.

Other key measures

Other company law reforms will be rolled out in stages over the course of 2024 and 2025. These will include:

Identity verification

ECCTA introduces mandatory identity verification for all individuals who are new and existing company directors and people with significant control (PSCs) and for individuals delivering documents to Companies House.

Details of the verification process will be set out in further regulations, but it is expected that there will be two types of identity verification, either direct verification with Companies House or an indirect route through an Authorised Corporate Service Provider (ACSP).

Direct verification at Companies House will involve digital facial verification using approved photo ID (eg passport/driving licence) and a photo of the individual's face. For indirect verification, ACSPs will need to be subject to the UK’s money laundering regulations (eg lawyers, accountants, company formation agents) and registered as an ACSP with Companies House.

In general, identify verification is expected to be a one-off process and once a person is verified, they will obtain verified status for all their roles in relation to every new company.

Directors and PSCs who do not verify their identity will commit a criminal offence and/or incur a civil penalty. Companies that are directed by an unverified director will also commit an offence.

Company filings

ECCTA will curtail the range of individuals who can file documents at Companies House on behalf of a company. This will be limited to an officer or employee of the relevant company (whose identity has been verified) or an ACSP (or its officers or employees).

Directors

It will be an offence for a person to act as a director unless their identity has been verified and their appointment has been notified to Companies House within the statutory deadline. New grounds for disqualification will include persistent failure to comply with identity verification requirements and filing obligations.

ECCTA will also bring in the long-anticipated ban on corporate directors, with powers to make exceptions to the general prohibition, already contained in the Companies Act 2006 (CA 2006).

Company registers

ECCTA will remove the requirement for companies to keep a register of directors, register of directors' residential addresses, register of secretaries and a PSC register. Instead, all the relevant information will simply be provided to, and maintained at, Companies House.

Register of members

Companies will still be required to keep their own register of members, but private companies will no longer be able to keep the register at Companies House. Companies will also need to keep standardised information on their members (eg their forename (no initials), surname and service address).

All companies (other than traded companies which are subject to DTR 5) will also be required to provide a one-off list of shareholders in their first confirmation statement after the relevant provision comes into force. For traded companies (which aren’t subject to DTR 5), the statement will only cover those shareholders who hold at least 5% of any class of shares.

Enhanced enforcement powers

Companies House will have a new direct power to impose civil financial penalties (of up to GBP10,000) for most offences under the CA 2006, as an alternative to relying on existing powers to bring criminal prosecutions for breaches through the courts, which is very rarely done.

It is anticipated that Companies House will be keen to use this new power and therefore, for the first time, there is likely to be a real risk of fines and sanctions for breaches of the CA 2006.

False statement offences

ECCTA will expand the current false statement offence contained in the CA 2006 so that it will be an offence for a person to provide false, deceptive or misleading information to Companies House “without reasonable excuse” (the current threshold is "knowingly or recklessly") and it introduces a new aggravated offence to do so knowingly.

How should I prepare for these other key measures?

• Consider preparing a list of the individuals (ie directors, company secretaries, PSCs, anyone who files on the company’s behalf) who will need to do identity verification and make them aware that they will need to be ready to verify their identity in due course. Start thinking about putting processes and procedures in place for identity verification.
• Start reviewing your processes for appointing new directors to ensure they avoid committing an offence (ie ensuring their identity is verified on appointment and their appointment notified to Companies House within the statutory deadline).
• Check if there are any corporate directors in office and if they will meet the exceptions to the general prohibition on corporate directors or if they will need to be removed or replaced.
• Ensure all director, secretary and PSC filings are up to date in advance of the abolition of the statutory registers and consider what internal records you want to keep following the abolition.
• Review your existing register of members to determine if any additional information may be required from members to meet the new standardised information requirements and to ensure you will be able to provide the one-off shareholder list. If you're currently keeping your register of members at Companies House, take steps to recreate it and maintain it going forwards.
• Be aware of, and emphasise internally, the increased importance of accurate, complete and timely Companies House filings (especially given Companies House's enhanced enforcement powers, the expansion of the false statement offence and the reforms to the director appointment and disqualification provisions).

Further guidance

For further guidance on the matters covered in this publication, please get in touch with your usual Corporate contact at DLA Piper.