Proposals to ban corporate directors

A new consultation has confirmed the Government's intention to ban corporate directors, six years after the original consultation on the same point. Companies must already have at least one 'natural person' as a director but the proposed ban would go further, essentially requiring all company directors to be individuals. 

Increasing corporate transparency

The proposed ban is part of the Government's drive to increase corporate transparency. Evidence suggests that the use of corporate directors – where one company acts as a director of another company - can muddy the waters around ownership and provide a screen behind which to conduct illicit activity.

Following the original consultation in 2014, provisions to implement a ban were included in the Small Business, Enterprise and Employment Act 2015. Those provisions were never brought into force but it seems they are now back on the Government's agenda.

An exception to the rule

The purpose of the new consultation is to agree a principles based exception to the general prohibition. This would permit a company to be appointed as a director if:

• all of its directors are natural persons; and
• before the corporate director is appointed, those natural person directors are subject to the new Companies House identity verification process announced in September 2020.

Under the proposals:

• UK and overseas entities will be subject to the same requirements. Where a company is seeking to appoint an overseas entity to the role of director, evidence would need to be provided to Companies House that that entity has only natural persons as its own directors, and those directors would need to have their identities verified; and
• a company that appoints a corporate director will be required to take all reasonable steps to assure itself that the corporate director has (and continues to have) no corporate directors. The company will be required to confirm that it believes this to be the position in its annual confirmation statement to Companies House.

Other entities

The consultation also asks whether the proposed ban should be extended to other forms, such as limited liability partnerships or limited partnerships. The former is within the scope of the existing powers but the latter would require additional primary legislation.

In this case, the ban would apply so that if the designated member of an LLP or the general partner of an LP was a corporate entity, that corporate entity must itself have directors who are all natural persons and who have been subject to the Companies House identity verification process.

The consultation closes on 3 February 2021 but it seems likely that the ban will come into force sometime next year.