Given the potential for the use of corporate directors to help criminals disguise their ownership of companies should they be banned as proposed by the Government?
It is currently possible to appoint a company or similar corporate body that has its own legal identity as a director of another company. 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.
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.
If you are appointing a corporate director you will need to let Companies House have the following information about the company/corporate entity:
- 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 an EEA organisation or not; and
- if a non EEA corporate director 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 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.Given the potential for the use of corporate directors to assist criminals the Department for Business Innovation and Skills included the proposal to ban corporate directors in its consultation document (Transparency & Trust: Enhancing the Transparency of UK Company Ownership and Increasing Trust in UK Business) issued in July 2013.
The consultation is also proposing 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 potentially vexatious issue around individual directors of a corporate director not being de facto directors of the underlying company and therefore acting as directors but without the personal accountability they would be subject to had they been appointed in their own right.