Should corporate directors be banned?

Given the potential for the use of corporate directors to help criminals disguise their ownership of companies, should they be banned as was proposed by the Government in 2013 in its consultation document (Transparency & Trust: Enhancing the Transparency of UK Company Ownership and Increasing Trust in UK Business)?

It is still possible to appoint a company or similar corporate body that has its own legal identity as a director of another company without restriction. This is despite the continued statements from Companies House that a ban will be implemented in due course in its business plans including that for 2018/19.

The roles and responsibilities of a corporate director are exactly the same as for individual directors.

Even if you appoint a corporate director you must also have at least one individual director as required by the Companies Act 2006. A company can have as many directors, individual or corporate, as wanted in addition to the mandatory individual director.  Directors can be changed at any time.

As partnerships and trusts do not have their own legal identity they, however, cannot be appointed as directors.  The corporate body can be a company incorporated in the United Kingdom or anywhere else in the world.

Need to appoint a director to your company?

Inform Direct is the innovative and straightforward way to manage officer records. All online, no fuss.

Start now

If you are appointing a corporate director you will need to let Companies House have the following information about the company/corporate entity:

  • name;
  • registered or principal office address;
  • country of registration and registration number;
  • name of the person acting completing the application for the corporate director;
  • if the corporate director is a UK registered company or not; and
  • if a non UK registered company the legal form and governing law.

This is done by completing form AP02. If you need to inform Companies House of any changes to the above you should use form CH02.  When a corporate director appointment ends you should use the same form TM01 as for individual directors.  In addition corporate company secretaries can be appointed where a company chooses.  Just as for directors there are a number of different forms that you will need to use to inform Companies House of any changes to your corporate company secretary. Specifically they are:

  • form AP04 for appointments;
  • form CH04 for reportable changes; and
  • form TM02 for terminations.

You should report all corporate officer appointments, changes to details and terminations to Companies House within 14 days of the changes being made. There are a number of reasons why corporate directors and secretaries are appointed some of which are legitimate and others not so. The legitimate reasons include:

  • To ring fence the liabilities of being a director to the company acting as corporate director rather than the individual. In the Holland v Revenue and Customs & Another (2010) UKSC 51 case the Supreme Court held that the directors of a corporate director were not liable to the underlying company for the actions of that corporate director provided the directors of the corporate director had acted correctly in relation to the corporate director’s actions.
  • A holding company being a corporate director of its subsidiaries so that it can maintain control over those subsidiaries.  It also allows the holding company to appoint different officers of the holding company to attend, and act for it at, board and other meetings.
  • Company formation agents when forming dormant companies which they then ‘sell’ to individuals wanting a company.  At that point the corporate director resigns.
  • Accountants and solicitors carrying out company secretarial duties for clients will often use a corporate body as the secretary.  Holding companies also similarly use corporate company secretaries.

Unfortunately, in addition to the above corporate directors can be used to help criminals that are looking to misuse companies.  Where a corporate director of a UK company is a company incorporated offshore it can become difficult to identify who are the directors and shareholders of that offshore corporate director. Making the company’s ownership structure as opaque and complex as possible can serve to hide the true beneficial owners from law enforcement agencies. Nominee directors, corporate or individual, can also be used to conceal corporate control.  Where individuals want to use a company to facilitate criminal activity they are unlikely to want to register themselves as a director and therefore may appoint a nominee director and/or an offshore corporate director.

The Register of Overseas Entities, introduced in April 2022 as part of the Economic Crime (Transparency and Enforcement) Act, aims to combat these practices by forcing the chain of ownership and control to be revealed.

The nominee and/or offshore corporate director is placed on the register of directors but follows the directions of the person who is really controlling the company (i.e. the criminal). In some cases, the nominee will even have no involvement in the management of the company with the criminal simply rubber stamping company documents with the nominee’s signature.

The consultation also proposed to make it harder to hide behind nominee directors.  The ban on corporate directors is already in force in certain other countries including the Czech Republic, Switzerland and certain American states.  The ban is only for corporate directors and the use of corporate secretaries is not proposed to be banned.

The proposed ban may address the issue around individual directors of a corporate director not being the actual directors of the underlying company and therefore they are acting as directors but without the personal accountability they would be subject to had they been appointed in their own right.

To date no ban on corporate directors has been implemented despite the outcome from the consultation being that corporate directors should be banned, subject to a few exceptions.  The proposed ban had been included in Companies House’s business plans every year since then until the 2019/20 business plan issued in April 2019 which is silent on this matter.  This may be related to the Corporate transparency and register reform consultation published in May 2019 which plans to make significant changes to the role of Companies House and increase the transparency of UK corporate entities.

Inform Direct is the perfect way for directors to manage their company's record, helping them meet their responsibilities.

An earlier version of this article was published on 22 October 2013. The most recent update was in December 2022.


Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.