Limited Liability Partnerships (Application and Modification of Company Law) Regulations 2025
(1 day, 17 hours ago)
Grand CommitteeRead Hansard Text Read Debate Ministerial Extracts
Lord Leong
That the Grand Committee do consider the Limited Liability Partnerships (Application and Modification of Company Law) Regulations 2025.
Lord in Waiting/Government Whip (Lord Leong) (Lab)
My Lords, in speaking to these amendments I will also speak to the Economic Crime and Corporate Transparency Act 2023 (Consequential, Incidental and Miscellaneous Provisions) Regulations 2025 and the Register of People with Significant Control (Amendment) Regulations 2025.
These instruments form part of the Government’s secondary legislation programme to implement the Economic Crime and Corporate Transparency Act 2023, which I will refer to as the 2023 Act. The 2023 Act delivers the most significant reform to Companies House in over 180 years. It is central to the Government’s efforts to combat economic crime, improve corporate transparency and increase trust in the UK’s business environment. Since the 2023 Act, Companies House has made great progress in implementing the reforms, including removing false and misleading data. For example, from 4 March 2024 to 31 July 2025, Companies House removed something like 113,300 registered office addresses, 88,000 officer addresses and 71,000 PSC addresses.
In April this year, Companies House launched its identity verification service. Hundreds of thousands of individuals have successfully verified their identities. This is a major milestone and ensures that customers and Companies House are ready for mandatory identity verification in November this year, a central pillar of our reforms. These regulations will support the delivery of identity verification, as well as other technical reforms relating to the people with significant control—PSC—framework.
I will briefly speak to each instrument in turn. The Limited Liability Partnerships (Application and Modification of Company Law) Regulations 2025 apply many of the reforms to companies contained in the 2023 Act to limited liability partnerships, also known as LLPs. Specifically, they introduce identity verification for LLP members and PSCs, prohibit disqualified directors from acting as an LLP member, and remove the requirement for LLPs to keep their own “local” registers of members and PSCs. Extending company reforms to LLPs will align requirements across corporate entities. This will reduce opportunities for misuse by criminals and ensure that LLPs, and those doing business with LLPs, benefit from a more transparent and reliable business environment.
The Economic Crime and Corporate Transparency Act 2023 (Consequential, Incidental and Miscellaneous Provisions) Regulations 2025 is a largely technical instrument that helps to underpin the smooth implementation of key elements of the 2023 Act. It makes necessary consequential amendments to primary and secondary legislation following the removal of the requirement for companies and other entities to retain their own local registers of directors, secretaries and PSCs. Instead, there will be one central register at Companies House. This will make life easier for users of the register, as they will know that the centralised register held by Companies House is the definitive version.
The instrument also introduces provision to support the rollout of identity verification through the mandation of unique identifiers. These codes are generated for each verified individual and will be used to prove an individual’s verified identity status. Without this instrument, crucial parts of the Companies House reform package would not be able to operate as needed. This instrument ensures consistency across the legislative framework and prevents references to repealed provisions from persisting in law.
Lord Sikka (Lab)
My Lords, I congratulate the Minister on retaining his position after the recent reshuffle of the Cabinet.
Despite recent reforms of Companies House, several issues remain unaddressed and the legislation in front of us does not really deal with them. I will illustrate my concerns with three pieces of empirical evidence. I can do more, but I do not have time.
The first concern is exemplified by a company called Herran Finance plc, which is company number 12370122 at Companies House. It was incorporated on 18 December 2019, with issued share capital, so its accounts claim, of £59,892,205. Its purpose is to provide financial services. This is a dormant company. It has never traded. The rudimentary accounts filed at Companies House show that it had cash in hand and at bank on 31 December of—guess what—£59,892,205. Amazingly, exactly the same amount was held a year later when the accounts for the following year were filed on 12 August 2022.
The company is engaged in banking, though it does not have the word “bank” in its name, which, as we know, is reserved for certain types of organisations. Its name does not appear on the FCA list of authorised firms. None of its directors is on the FCA list of authorised individuals. No person of significant control statement could be found at Companies House. The company’s page at Companies House noted on 10 October 2023:
“Compulsory strike-off action has been suspended”.
There has been no update since then. That is, nearly two years have elapsed.
This is a fake company that may have duped people. It actually has a website and its address is herran.co.uk, which has all the hallmarks of a scam. It describes itself as
“the 10th oldest bank in the country”
and says that deposits with it are safe because they are insured with the Federal Deposit Insurance Corporation —yes, a UK-based bank covered by US depositor protection. If anyone needed a sign of fraud, there it is. The website is an exact clone of a genuine bank.
Some five years after the incorporation of this organisation, no attempt has been made by Companies House to see that the accounts are genuine or that the company is licensed to carry out the described activities. Can the Minister explain who checks whether a fake bank has been incorporated at Companies House and how often these checks are made? Who are they reported to?
Directors of Herran provide a UK address but do not appear to live there. Companies House does not require proof of address when you first create a company. Anybody’s address can be used and, paradoxically, the injured party must provide evidence of the proof of address to correct data held at Companies House—but crooks do not have to. Can the Minister explain why no authentic proof of address is needed to register a company at Companies House?
Does the Minister agree that the filing of false information at Companies House should be a criminal offence? Why is that not already the case? What is the Government’s plan to deal with this? We have a lot of debates around immigration, but fake companies can be used to secure work visas. Can the Minister tell the House how many work visas have been secured by false companies? How do the Government know how many have been issued? Is there any check at any time? That is my first piece of evidence.
My second piece of evidence is that numerous fake banks are routinely registered at Companies House. Examples include “CITIC Limited”, “The Toronto Dominion Ltd”, “JPMorgan Chase Ltd” and “Goldman Sachs Finance Ltd”, and all these had a common director: a person named Barbarat Giuseppee, who claims to be an Italian living in France. The address given is probably non-existent, and the person probably does not exist either. The same Giuseppee currently holds seven company directorships according to Companies House. Yet nobody has bothered or cross-checked; nobody seems to be doing any job in tackling the crooks.
No amount of identity verification can confirm that a foreign national forming a UK company is genuine, as the UK does not have access to the passport or birth certificate databases of other countries. Even if a genuine foreign national is caught in illicit practices, UK law cannot be enforced on any person living in another country. Around 900,000 UK-registered companies do not have a UK director. Evidence shows that a company with only foreign directors is 17 times more likely to show signs of fraud, yet nobody has bothered to deal with this particular problem.
Genuine companies are not informed by Companies House or anybody else of the existence of fake companies abusing their name. As and when they discover this, they are left to incur legal costs out of their own pocket to fight fraudsters. Can the Minister explain why Companies House registers blatantly fake companies? Does he agree that we need a law requiring all UK-registered companies to have at least one UK citizen as a director? That way, at least we would know whom exactly to hold to account.
My third piece of evidence relates to a law firm that was shut down in October 2023. The name of the firm is Axiom Ince Ltd and it was closed by the Solicitors Regulation Authority. Some £64 million of clients’ money was missing. Unaudited accounts for the year to 31 March 2022 were filed at Companies House on 7 February 2023. They were not audited because directors claimed that the company was a small company. It was not, because it did not satisfy the requirements of the Companies Act definition.
An accountancy firm named Adrian C Mansbridge & Co. issued an accountants’ report and went along with the directors’ fiction—for a fee, of course. Subsequently, the Institute of Chartered Accountants in England and Wales fined the firm the puny sum of £2,100 and recovered the disciplinary costs of £2,200. The ICAEW keeps the fines to swell its coffers. The whole thing is a racket. Accountancy trade associations make money by licensing accountants and auditors and then profit again from their misdemeanours.
Companies House never checks accounts to see whether any of the audit exemptions claimed are appropriate. Can the Minister explain who checks to ensure that the accounting and auditing exemption requirements are not abused? He cannot say that it is up to the directors, because they are party to the wrongdoing, and he cannot say it is up to the auditors and accountants, because they are party to the wrongdoing as well.
So, currently, there is no central enforcer of company law, and the deregulatory zeal in political circles at the moment is unlikely to deliver the required transparency or freedom regarding economic crime, which is what the Minister said the legislation in front of us will deliver. I look forward to his response.
Lord Vaux of Harrowden (CB)
My Lords, I thank the Minister for introducing these regulations. It is good to hear from him on the progress Companies House is making in cleaning up the register and the process of verification, although, as the noble Lord, Lord Sikka, has just demonstrated so clearly, it is a work in progress.
The Register of People with Significant Control (Amendment) Regulations 2025 are fine so far as they go, but they still leave it far too easy for persons with significant control to disguise themselves and, therefore, not be disclosed on the register as they should be. We discussed this loophole at some length during the passing of what the noble Lord called the 2023 Act. It relates to the use of undisclosed nominee share- holders.
During the process of passing the Act, this House passed an amendment on Report that would have required shareholders holding 5% or more to declare whether they are holding those shares on behalf of another person. That amendment was ultimately dropped during ping-pong after a compromise was reached with the then Government that inserted into the Bill a power for the Secretary of State to regulate to strengthen the rules around nominees’ shareholdings.
A PSC has an obligation to state that they are a PSC, but a dishonest actor would not do so. The problem we have is that the onus on reporting PSCs falls to the company, and the obligations on the company under the statutory guidance are quite weak. The statutory guidance says that the company should simply scan its share register and identify any shareholders who hold 25% or more. It is easy therefore for a PSC who wishes to hide their identity to structure their holdings via a number of shareholdings below that 25% threshold. For example, five holdings at 20% would give 100% control.
All the dishonest actor has to do to hide that control is find five willing people who are prepared to have their name on the shareholder register and hold shares on behalf of the dishonest actor as nominees. There is no comeback for those nominees. They have no obligation to disclose the nominee arrangement unless the company actively asks them to, which it does not have to do if the shareholding is below 25%. So the company could quite legitimately say that it had followed the guidelines and state that it does not have a PSC because it could not see any shareholders above the 25% threshold.
A whole industry of nominee companies has grown up, as you can see if you google “nominee shareholders”. If the Minister has not done that, I urge him to take a look. Although there are perfectly reasonable uses for nominee shareholdings, it is fair to say that most of the nominee companies make it pretty clear on their websites that the primary purpose is simply to hide the beneficial ownership of the shareholding, which they will do for just £200 a year. Very few of them point out the PSC rules. Forcing those nominees to lie on the record to hide the identity of the beneficial owner would, at the very least, concentrate their minds and make it much harder for a dishonest PSC to find nominees prepared to hide their identity.
My questions for the Minister are as follows. What analysis have the Government done on this since the Act was passed? Does he recognise the issue? Is there any plan to use the powers that were inserted into the Act during ping-pong to deal with it?
Lord Sharpe of Epsom (Con)
My Lords, I, too, am delighted to be able to welcome the Minister back to his place. I should have done so earlier, in the Chamber, but I am very pleased to see him there. I am grateful to him for introducing these three important instruments and for so clearly setting out the Government’s rationale. For the record, I should probably declare that I have been a member of an LLP, but I am not any more. Together, these instruments continue the implementation of the Economic Crime and Corporate Transparency Act 2023, with the shared objective of enhancing transparency, reducing fraud and strengthening the integrity of the UK’s corporate environment. For the record, I should say that I agree very much with the noble Lord, Lord Vaux. It is very good to hear the progress being made with regard to Companies House. We will come back to that.
Lord Leong (Lab)
My Lords, I thank all noble Lords who contributed to this short debate: my noble friend Lord Sikka, and the noble Lords, Lord Vaux and Lord Sharpe. These regulations are another step in the delivery of the Companies House reform programme and are critical in ensuring that it operates effectively. So I really do thank all noble Lords for their questions. I will respond to as many as possible and I will check Hansard to see whether I have answered all of them. If I have not, I will obviously write to noble Lords.
I will address my noble friend Lord Sikka’s forensic look at fake banks, late filing offences and all that. I will try to answer as many of his questions as possible. Regarding fake banks and fake filing offences, Companies House has new powers to query and remove false information. As I said earlier, from March 2024 to June 2025 it prevented some 14,000 suspicious filings. The regulation of banks is for the Financial Conduct Authority, as the noble Lord knows. Companies House has implemented checks on incorporation to prevent companies forming where they do not have regulatory approval to operate as a bank. It continues to work with the FCA on this issue. The filing of false information with Companies House is a serious criminal offence, and those who have done so will have the full weight of the law thrown at them. There is a basic offence of filing without reasonable excuse and an aggravated offence of filing knowingly, so it is a very serious thing.
My noble friend Lord Sikka asked about overseas persons and whether there are any identification checks. Companies House will be able to perform robust ID checks on overseas individuals via the Government’s One Login system, which is now operating. If noble Lords have not had a chance to look at it, I encourage them to do so. Before I was in government, I personally managed to get a One Login set up—it is very easy to register and does not take more than 10 minutes to verify yourself.
If an individual cannot verify their identity, they will not be able to incorporate a company or act as a director. Existing companies will be unable to file a confirmation statement, and this will lead to a strike-off. From November, all filings will have to have verification, and this will be rolled out over the next few months to ensure that, for every single confirmation filing, the people filing it will be verified. They can either do it themselves or they can do it via the ACSP.
I thank the noble Lord, Lord Vaux, for his question and his contribution, during the passage of the Act, on nominee shareholders. I will go through our position as far as they are concerned. The Government are aware of the misuse of nominee arrangements, including to avoid disclosure under the people with significant control regime. Work is ongoing with stakeholders to determine the scale of this issue, and the ECCTA provides the power to make regulations to enable a company to find out who its PSCs are in cases where shares are held by a nominee. The Government are wary of imposing disproportionate burdens on legitimate businesses and investors. So, before making any regulations, it is right that the Government work with relevant stakeholders to ensure that burdens can be targeted effectively. In the meantime, the Companies House intelligence hub will use data science to identify threats of economic crime on the register, including the threat posed by agents facilitating the criminal activity of others. Companies House will make this intelligence available to partners such as law enforcement and supervisory bodies.
In 2024-25, the average number of shareholders per company was something like 2.1 shareholders per company, and the average number of PSCs per company is something close to about 1.2, so it is actually quite small. But we still need to get to the bottom of this to see how widely it is misused. This is in line with expectations as the vast majority of companies are law-abiding SMEs.
My officials have been in touch with other countries to learn from their experience in the nominee shareholders’ space. Among others, this includes Singapore. In Singapore, companies are required to keep a register of their nominee shareholders containing the particulars of all their nominators. My officials will continue this engagement as they work better to understand the scale of the issue, as I said earlier, and the cost and benefits of the new nominee shareholders requirement. It is important to this Government that any reforms are proportionate and workable.
On the point made by the noble Lord, Lord Sharpe, about acting as a member of an LLP, the offence of acting as a member without being verified is explicitly defined. If one individual performs the functions of a member—that is, a director—or actions that relate to the running of an LLP, they are likely to be acting as a member. So IDV will apply to both members who subscribed their names to incorporation documents equivalent to the director of a limited company and ordinary members with lesser responsibilities, usually set out in LLP’s own members’ agreement. Obviously I will speak to officials, and if my answer to the noble Lord’s question is still not detailed, I will ensure that a letter will be sent to him.
On the point about limited partnerships, which I think the noble Lord asked about, Companies House is currently looking at it. Correct me if I am wrong, but I think there are something like 60,000 limited partnerships on record, and Companies House is trying to clean this up to see how many of these limited partnerships are still active. So, over the next few months, it will clean it up, and those that have not filed confirmation statements and all that will be written off. We recognise that there is a need for limited partnerships in respect of investment trusts, private equity, and so on, so we need to ensure that they are properly regulated as well.
Regarding identity and corporate LLP members, the Government will be reviewing which individuals will be required to identify where a position is held by a corporate entity and not an individual. So we are working on that, and I hope we will be able to inform the House when it is done.
I want to conclude by reminding Peers of the importance of these reforms. These regulations are necessary to make the UK a safer and more transparent place to do business. I commend these measures to the House.