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Economic Crime and Corporate Transparency Act 2023: Changes from 4 March 2024 and the Implications for LLPs and Professional Firms

The Economic Crime and Corporate Transparency Act 2023 (ECCTA 2023) aims to improve the prevent fraud and enhance the UK’s reputation for businesses, according to Business Minister, Kevin Hollinrake. As part of this reform, Companies House will transform many of its processes to help tackle economic crime and improve transparency of the Companies House register.

A number of measures in the ECCTA 2023 apply or will to LLPs, limited partnerships and companies. This news alert addresses the first wave of changes as they apply to LLPs.

The new measures came into force on Monday 4 March 2024, and were applied to LLPs by The Limited Liability Partnerships (Application of Company Law) Regulations 2024.

Some key changes for LLPs are as follows:

1. Registered office address

    • LLPs must ensure their registered office is an “appropriate address”.
    • An appropriate address is an address where:
      • anything that is delivered by hand or post must come to the attention of a person acting on behalf of the LLP; and
      • the delivery must be capable of being acknowledged.
    • LLPs can no longer therefore use PO box addresses.
    • An LLP could still use a third party agent’s address (e.g. a corporate services provider) as long as it satisfies the conditions for an appropriate address.
    • When LLPs register any change to their registered office, they will need to confirm the address is an appropriate address.
    • Failure can result in a fine for the LLP or its designated members, or the LLP could be struck off the register.

Most LLPs will not struggle with this new rule because they operate their businesses from the address which is their registered office. Firms may want to review their systems and processes to ensure that correspondence from Companies House would, if delivered to the post-room, swiftly reach a person with authority to assess and act on Companies House communications. These systems need to be sophisticated enough to address temporary absences (such as holiday, illness or family leave) or personnel leaving and joining the firm more generally. It may be sensible to briefly address this in the LLP deed, when it is next updated.

These new rules also apply to companies, so professional firms with companies in their structure will need to ensure those companies comply with these rules.

Professional firms which offer corporate services to clients, or simply those which have allowed clients to use the firm’s address as a registered office address for a client company or LLP, will urgently need to review those arrangements. Is the firm comfortable in every single case that correspondence will come to the attention of someone acting on behalf of that client company? This will be straightforward if the arrangements are properly recorded internally and relate to active matters. This will be much harder if the arrangement was an ad hoc agreement between a partner and a client, probably some time ago and only ever intended to be temporary. This may be complicated further if the partner has left the firm and/or the client is no longer an active client.

Firms may also need to consider if changes to accommodate these rules have unintended consequences. For example, firms may wish to double check with their tax or regulatory advisers that providing a different registered office address does not affect the firm’s tax or regulatory profile.

2. Registered email address

    • LLPs must have a registered email address which is an “appropriate email address”.
    • This is an email address to which, in the ordinary course of events, emails sent by Companies House would be expected to come to the attention of a person acting on behalf of the LLP.
    • This email address will not be available to the public.
    • New LLPs need to provide a registered email address when they incorporate.
    • Existing LLPs will need to provide a registered email address when they file their next confirmation statement. The timing will therefore differ from LLP to LLP.
    • When LLPs register any change to their registered email address, they will need to confirm the address is an appropriate email address.
    • Failure can result in a fine for the LLP or its designated members, or the LLP could be struck off the register.

This is a slightly more onerous new obligation as firms are not accustomed to corresponding with Companies House by email, or having systems and processes in place to ensure this can be effectively achieved. However, this should be relatively easy to accommodate. Firms will need to ensure their systems and processes provide an appropriate email address, which is monitored regularly, even as team members leave and join. It may be sensible to assign responsibility for monitoring this email address so there is clear accountability. It may also be wise briefly to reflect this new obligation in the LLP deed when it is next updated.

Again, this also applies to companies, so firms with companies in their structures need to provide appropriate email addresses for those companies too. This may be complex if those companies are dormant or inactive subsidiaries with minimal management infrastructure.

For the same reasons as noted above, this could be a more onerous burden for professional firms which provide corporate services/company secretarial services to clients, as they will need to establish whether or not the scope of their work extends to providing this service (and if so, how to provide those services effectively and how much to charge).

3. Restrictions on company names

    • There are additional new restrictions on using LLP (and company) names that contain computer code, intended to facilitate criminal purposes or suggest a false connection with a foreign government or international organisation.

4. Lawful purpose requirement

    • Persons who wish to incorporate an LLP (or company) will need to confirm they are forming the entity for a lawful purpose.
    • All existing LLPs (and companies) will need to confirm that its future activities will be lawful in its annual confirmation statement. The timing will for each entity.

5. Greater powers to query information

    • Companies House’s powers under Part 35 of the Companies Act 2006 have been enhanced. Companies House can challenge and reject information that seems incorrect or inconsistent with information already on the register and, where appropriate, remove it or annotate the register to flag any potential issues.
    • The registrar can also ask any individual to provide further information when an issue or query arises. Failure to respond quickly can cause the matter to be escalated to a formal query for information. If there is still no response within 14 days, this is a criminal offence, with consequences including a financial penalty, prosecution and an annotation on the company’s record.
    • Companies House can also share information with government departments and law enforcement agencies to bolster efforts against economic crime.

These are unlikely to concern professional firms.

Next Steps

If your LLP (or company) is not compliant with any of the changes above, it is important to act to make the necessary changes, as there can be criminal sanctions for failure to do so. Remember that for regulated firms, such as law firms regulated by the SRA, sanctions or non-compliance may be reportable to the SRA.

A sensible first step would be to identify all LLPs and companies within the group structure and when the confirmation statement/annual statement for each will be required. For most firms this will be the first point at which the impact of the changes will be felt.

One of the biggest changes yet to come to Companies House is the introduction of the identity verification process for all new and existing company directors, LLP members, and persons with significant control. This process has not been implemented, so there is nothing that needs to be done yet. However, it is important to keep abreast of any updates over the coming months, as Companies House has indicated that it will soon explain when these changes will come into effect and provide more information about how the identity verification process will work.

Firms will also be considering whether or not to serve as ‘authorised corporate services providers’, especially firms with strong corporate practices and which establish companies and LLPs for clients.  Those firms will be reflecting on how to create and implement systems and processes to undertake those roles. It is unlikely to be attractive for a large law firm with a revered corporate law team to be unable to incorporate a company for a client, or provide shell companies to clients.

These changes have a noble aim and are manageable, but adapting to them requires input from a range of different internal teams, including the risk and business acceptance team, pricing specialists, client-facing teams and even the management board (on key decisions such as whether or not to offer services as an authorised corporate services provider and assume the elevated risk that represents

If you would like to discuss these changes or their implications for LLPs and professional firms, please contact Partners Corinne Staves and Zulon Begum or Paralegal Anaya Price.