New Laws Coming For Companies. More Red Tape? Being More Chinese?

Governments and Opposition both often campaign on a promise to “Get Business Going“ and to “Cut Through the Red Tape”.

Yes, right, so here comes some new additional red tape and we are not surprised a bit.

Is the “Economic Crime and Corporate Transparency Bill” on your radar?

It is the next step in the rule changes at Companies House proposed for all Companies including the very smallest ones (“micro-entities) and it Received Royal Assent at the end of October 2023. It will be implemented, as new Law often is, bit by bit, so that Companies and their advisors can have some time to get used to how it is going to work and what is required. No doubt Companies House also will need this time to get up to speed.

Here is a link to the text of it. Click here

New Law? What again? It’s not as if there isn’t a lot of it already, and it looks as if we’ll all be paying more money to our accountants.

Trouble is, criminals are ever active and the UK Company Registration System is less than impregnable to fraudsters.

As Companies House states in its own Press Release, “At present, Companies House is primarily tasked with storing information in respect of UK corporates, and to making that information available to the public. Its ability to query information which is submitted to it is very limited, meaning that it cannot effectively police the submission of incorrect data or flag suspicious activity among corporate entities.”

I have often had to explain to foreign jurisdictions, who find it hard to accept, that up to now Companies House is entirely “re-active” not “pro-active”. Which means that, if you don’t tell Companies House that you have appointed a new Director in your Company, then it doesn’t know. But according to the present Law, the new Director is in place and can start running the Company, even though they are not on the record.

If a liquidator doesn’t tell Companies House that the company has gone bust, then again, Companies House simply doesn’t know.

This is in stark contrast to the ways of other countries. In Russia or China for example, No-one will be a Company Director unless the State says they are. (Are those Countries now our role models? Hmmm.)

The intent of the new Law is to change all that.

In future a newly appointed Director will not be able to act as a Director until listed as such at Companies House. (So – more like in China then!).

One other aspect of the present system is the lax approach to names. In many countries, your name is your name. Your whole name and nothing but your name. Just like with your passport number. You don’t leave out the middle three numbers and say – oh I don’t use the middle ones.

But names? Not in UK, or in USA for that matter. And Companies House has been accepting that. So, a Company with one Director who is also the Company secretary, might have Joe A Bloggs named as the secretary, and Joseph Albert Bloggs as the Director. They are the same person. But sometimes when I raise this with Mr Bloggs it seems that he simply doesn’t recognise the fact that they can’t both be his name.

Which is your name? They both are. But they are not the same words. No, but they are both my name. Doh.

We sort of get how this works in day-to-day life. James is Jim, William is Bill. OK. Yet it requires quite a sophisticated computer system to see that perhaps the two names relate to the same person.

So, in future the idea is that names (you know, what it says on your Birth Certificate) – will be used.

This merges with another requirement of the new law about the proper identity verification of all officers and persons with significant control. Which is that for reasons which with hindsight seem obvious, Directors will no longer be able to self-certify their identities. It seems you may have to submit your original passport or driving licence at least unless you use a professional identity verification service.

And here may I point out that Notaries Public will be accepted at Companies House as authorised corporate service providers suitable to deal with identity verifications. Just saying.

Shareholder details will be required to be notified in a much more transparent manner.

Companies will be required to have an email address.

And of particular relevance to smaller companies, there will be new rules as to filing of financial accounts.

This will mean that huge numbers of companies which at present do not have to file their profit and loss accounts, will now have to do just that.

The plan is to combat fraud. How exactly, I naively ask, does this achieve that? Answers on a postcard please.

And if this is a remedy, is it proportionate to the problem?

For example, If the patient has measles, then measles will no longer be a problem if the Doctor shoots the patient with a gun. But generally speaking, it’s not considered to be the best way to cure measles.

If we can accept that the majority of small companies are not fraudulent, still they will be required to publish their P&L accounts just like the crooks.

According to a blog by “accountingweb.co.uk” a staunch opponent of the reform, Izzi Rosenberg from Harris Rosenberg argued that the reforms are not going to meet its objectives to prevent fraud. “It’s completely useless. Anyone who needs to see a profit and loss, lenders and HMRC will get exposure to that and putting it in the public view will not combat fraud.”

He also raised concern that “it’s going to expose small businesses to a nosy neighbour culture” and will put them at a weak competitive advantage against larger customers.

“You have a lot of small businesses who are solely supplying to a supermarket chain as their main customer. But if that Supermarket now has access to P&L information on these smaller companies, they can see how much they contribute towards their turnover and they can see information about their profit margins, and if they think this supplier has been too profitable, then they’re going to start squeezing them,” he said.

I suppose that if there is no freedom and there is no privacy, then there is no fraud. But remember the patient? The patient is dead.

Anyhow, we are where we are.

Most of the measures outlined above will be brought in gradually.

There can be no doubt that these are real changes, therefore they need to be prepared for now, rather than addressed under pressure later.

A relevant song?. Click Here? Everything is Broken.

Please do contact us whenever you need Notarial certification or Legalisation for your Documents– at https://www.atkinsonnotary.com – or phone us on 0113 816 0116 (internationally 0044 113 8160116)