COMPANIES risk being caught short if they are not ready for greater demands on verifying the identity of their directors and connected businesses, a Scottish corporate lawyer has warned.
An impending new law means that Companies House will impose more stringent measures on confirming the identities of both new directors of existing companies or those of newly-incorporated ventures – as well as keeping accurate details of shareholders.
And, with the Economic Crime and Corporate Transparency Bill expected to secure Royal Assent shortly, lawyers at Edinburgh-headquartered legal firm Lindsays say those poised to take action shortly should be prepared to follow a new regime.
Director identity verification is one of its major features – a move designed to improve transparency, clamp down on fraud and stop UK companies and partnerships being used for international money laundering.
The same applies to persons with significant control, such as major shareholders, or directors of connected companies. They must either provide ID directly to Companies House, or produce a statement confirming that they are identified already, such as by a UK-based firm of solicitors.
Curtis Preston, a solicitor in the Corporate law team at Lindsays, said: “This is a significant shift, placing greater power into the hands of Companies House.
“We expect Royal Assent to be granted at any time, so anyone looking at directorships or other changes in a company now would be well advised to be prepared for having to meet these obligations. Otherwise they risk change needed in their company being delayed or facing sanctions.
“Essentially, the law is designed to make it more difficult for companies to disguise their beneficial owners. If a company fails to properly identify them, the Registrar of Companies will highlight that, and will be given more power to investigate and remove filings.”
Lindsays lawyers are already working with clients to prepare them for the change.
Central to the new law is making the ownership of any company completely clear. Companies will be required to keep detailed registers of shareholders, including any arrangements where shares are held on behalf of someone else.
Mr Preston added: “While transparency is not generally an issue for the SMEs which we predominantly advise, this is another layer of administration which will need to be factored in, with not just a financial penalty possible for non-compliance, but even imprisonment and a criminal conviction.
“Perhaps importantly for those embarking on expansion or re-organisation, where a company is being set-up which is wholly owned by another, the controlling company and certain significant individuals will need to be identified as a prerequisite to its establishment, rather than it just being a record-keeping requirement after the fact.
“So, setting up subsidiaries, for example, may no longer be as straightforward as it is currently.”
In a move to ensure all agents are registered and supervised in the UK, the new law will also require those acting for companies to prove that they are properly supervised before they can register with Companies House and file details. Evidence submitted will be cross-checked with HM Revenue and Customs, as well as the Financial Conduct Authority.
While fine-details have still to be confirmed, it is expected that verification will be a one-off process.