Corporate director reforms under ECCTA

While a restriction on corporate directors did not originate in ECCTA, the proposed ban fits neatly with ECCTA’s drive for enhanced transparency of corporate ownership and control. Therefore, it is not surprising that ECCTA includes further provisions to finally bring a ban on corporate directors – with exceptions still to be confirmed in regulations – into force.

What’s the current position on corporate directors?

Section 155 of the Companies Act 2006 requires only that at all times a company has at least one director who is a natural person – an individual, not a corporate entity. Therefore, a corporate director cannot be a company’s sole director.

Beyond that single mandatory human director, there are no restrictions on how many corporate directors a company can appoint. While a corporate director must be a body corporate with legal personality – which excludes partnerships and trusts – there is no restriction on where a corporate director is incorporated. A corporate director can therefore be:

• A UK company;
• Another UK body corporate with legal personality, such as a limited liability partnership (LLP) or Charitable Incorporated Organisation (CIO); or
• An equivalent corporate entity registered anywhere else in the world.

Currently, therefore, corporate directors can still be appointed with few restrictions. A corporate director can itself have one or more corporate directors appointed to its board, creating the possibility of ‘chains’ of control.

There is no identity verification requirement for a corporate director appointment, although if the appointee is a UK company then the individual directors of that appointee will be subject to identity verification as such. If a non-UK company is appointed as a director, the directors of that appointee would not currently be caught by the UK’s identity verification regime.

We have a dedicated article that covers the features, advantages and disadvantages of corporate directors, and how they can currently be appointed.

One part of the wider reform programme is already in force, though it does not touch the ban itself. ECCTA inserted new sections 167G–167L into the Companies Act 2006, setting out the specific particulars Companies House must hold about a corporate (or firm) director – its name, principal office, a service address, and its UK company registration number (where applicable).

Why are changes needed to restrict corporate directors?

ECCTA’s focus is on improving transparency and reducing the scope for financial crime, and corporate directors have been a specific, long-running concern within that agenda. The UK Government first proposed banning them for most companies in a 2013 consultation, Transparency & Trust: Enhancing the Transparency of UK Company Ownership and Increasing Trust in UK Business, following corporate ownership and control opacity being identified as a problem at the 2013 G8 summit in Northern Ireland.

A government impact assessment found that despite corporate directors being used by only a small minority of companies – around 2% of the register – they featured disproportionately in patterns linked to financial crime and reduced confidence in the register’s reliability. The core concern is straightforward: a corporate director, particularly one incorporated offshore, can make it very difficult to identify the individuals actually making decisions for a company. The public register shows the corporate entity’s name, not a person, and tracing that corporate director’s own directors and shareholders can itself become difficult across jurisdictions – potentially compounding a lack of transparency.

What will the corporate director ban actually change?

The highlight: based on the Government’s latest thinking, once in force a company will only be able to appoint or retain a corporate director if that corporate director’s own board consists entirely of natural persons, each of whom has completed identity verification, and the corporate director is itself a UK-registered entity with legal personality. Existing non-compliant corporate directors will get a 12-month transitional period before they automatically cease to hold office.

The Small Business, Enterprise and Employment Act 2015 (SBEEA) inserted new sections into the Companies Act 2006 to prohibit corporate directors, including in Section 156A (“a person may not be appointed a director of a company unless the person is a natural person”). Section 156A makes an appointment in breach of the prohibition void, and makes it a criminal offence – committed by the company making the appointment, by the corporate entity purportedly appointed, and by every officer in default.

Section 156B gives the Secretary of State power to create exceptions by regulation. This power has been usable since March 2024, when ECCTA’s own Commencement Regulations activated it, even though the prohibition itself remains uncommenced and the scope of any exceptions is still to be confirmed by regulations.

The shape of the Government’s thinking on corporate directors which would be excepted from a ban was laid out in a 2022 White Paper. This proposed that an existing corporate director could remain in place, and a new corporate director could still be appointed by a UK company, as long as:

• The corporate director is a UK-registered entity with legal personality; and
• The corporate director’s own board is comprised exclusively of natural persons

This proposal would have a number of consequences:

• By definition, all of the directors acting on behalf of the corporate director would be subject to identity verification requirements.
• It would preclude ‘chains’ of corporate directors. A corporate director could not itself have a corporate director on its own board.
• It would exclude non-UK corporate entities as corporate directors. Individuals based outside the UK could still be directors of a corporate director, just as they can act directly as an individual director of a UK company, subject to the standard identity verification requirements

Section 156C of the Companies Act 2006, introduced by SBEEA, sets a 12 month transitional period for existing corporate directors once a ban is switched on. Once the prohibition is commenced, corporate directors already in office get 12 months’ grace, in which they may continue to act. After that period, any that don’t fall within an exception automatically cease to be directors.

It appears that this would still trigger the general duty on companies to notify the Registrar when a person ceases to be a director. That would mean that – despite the fact the cessation is automatic – the company would need to submit the appropriate TM01 form to Companies House. If a company fails to do so, the Registrar is required to annotate the company’s record to flag the discrepancy.

What still needs to be decided?

A number of practical questions remain open, in large part because the exceptions have been described in policy terms since 2020–22 but have not yet been written into a final statutory instrument:

• Most importantly, there is no commencement date for the ban, and therefore for the start of a transitional period. Companies House’s own progress reporting to Parliament has not named the ban as among its explicit near-term priorities.
• The scope of exceptions is still an open question, despite previous statements of intent. That proposed policy description was last set out substantively in 2022, so it’s very possible that details may change in a final statutory instrument.
• The exact regulatory text of any exceptions – including how ‘all reasonable steps’ to police the no-chains condition will be assessed – has not been published. For example, at the time of appointment, a corporate director may validly have only individual directors on its board. But what is to stop them later appointing a corporate director and thereby creating a chain, and how could the original appointing company control that? Certain other changes to the corporate director’s structure that would invalidate the exception would similarly need appropriate supervision mechanisms.
• It isn’t yet clear whether a company will need to proactively confirm a corporate director meets an exception at the point of appointment, as seems likely, or whether this will be checked only reactively – for example when a confirmation statement is filed.
• The identity verification condition for a corporate director’s own board was discussed before Companies House’s current verification infrastructure (GOV.UK One Login and Authorised Corporate Service Providers) existed. It’s reasonable to expect the final regulations will plug into that system, but this hasn’t been confirmed.
• Whether, and how, the same approach will extend to corporate general partners of limited partnerships and corporate members of limited liability partnerships. This was previously flagged as a likely direction of travel in earlier consultations, but not finally confirmed.

Identifying challenging cases – scenarios to look for

Here are some types of arrangement that could pose a particular challenge under the proposed rules, and which will demand special attention:

• Group structures with layered corporate directors. Where a corporate director itself has a corporate director on its own board – common in multi-tier group structures – the proposed ‘no chains’ condition looks likely to exclude the arrangement from the exception entirely.
• Overseas corporate directors. Any UK company currently using an overseas-incorporated corporate director will need to either replace it or restructure around a UK entity, since only UK-registered bodies with legal personality are expected to qualify once the ban takes effect.
• Dormant and shelf companies held by formation agents. Formation agents commonly use a corporate director to hold a dormant company‘s board seat until it is sold on, at which point the corporate director resigns. This practice will need to adapt – either by using a natural person as an interim director, or ensuring the formation agent’s own corporate entity meets any exemption.
• Family companies using a corporate trustee as director. Where a family trust structure uses a corporate trustee as a company’s director, the trustee company’s own board will need to consist entirely of natural persons who have completed identity verification for the arrangement to continue unchanged.
• Professional trustee and nominee companies. Firms offering corporate trustee or nominee director services at scale will need to assess whether their own corporate structure already satisfies any confirmed exception, or whether it requires restructuring to avoid losing large parts of this business line.
• Joint ventures with a corporate director representing each partner. Where a joint venture company has a corporate director appointed by each JV partner (rather than an individual), each partner’s corporate appointee will need to independently satisfy any exception criteria.
• Historic company structures with no natural person director behind the corporate one. Some older or informally maintained companies may have a corporate director whose own board has, over time, come to include another corporate entity. Regardless of the potential for a ban on corporate directors, such legacy arrangements are ripe for review.
• LLPs with a corporate designated member. The same direction of travel is expected to extend to corporate general partners of limited partnerships and designated members of LLPs, may face an equivalent identity verification requirement for the natural persons behind them.
• Companies relying on a corporate director for liability ring-fencing. Where a corporate director has been used specifically to keep directorship liability within a corporate entity (following the reasoning in Holland v HMRC), losing the ability to use a non-qualifying corporate director removes that structure. Alternative options, either via a qualifying corporate director or the use of directors’ and officers’ insurance, may need reviewing.

How to prepare for the corporate director reforms

There is no set commencement date for a ban on corporate directors, and some of the detail – particularly the final shape of any exceptions – is still subject to confirmation. It is still possible, however, to make real progress now, especially because the affected population here is a known, bounded group rather than every UK company.

Here are the types of actions that accountants and their clients may start to explore:

A particularly useful discipline for accountants acting for group structures or other complex arrangements: treat this as part of the annual client review now, even before there’s a legal requirement to do so. Identifying which clients have a corporate director, whether that remains useful and would already meet the proposed exception, costs little and avoids a scramble once an appointed day is finally set.