BREXIT: Will the UK become an offshore haven
One of the charges levelled at Brexit has been the likelihood of the UK becoming an offshore haven for foreign companies, the implication being that overseas investors who establish companies in the UK are motivated simply by a desire to avoid or reduce taxes.
Well on occasion maybe…….. but in our experience there are many perfectly legitimate reasons for non UK residents wanting to set up UK companies. For instance the UK is recognised as being relatively incorruptible compared to certain other nations, hence there are a disproportionately high number of overseas owned companies registering with the UK’s Companies House, compared to other jurisdictions. Potential judicial corruption in some countries can force non-British business owners to register their businesses in the UK simply to guard against “share-raiding” i.e. bribery-induced shifting of ownership on the official records. Registering your company in the UK can significantly reduce this risk.
That said, the benefits of owning a UK business can be just as attractive to the non legitimate as the legitimate businessman. Hence the significant due diligence that has to be undertaken by UK Company Formation Agents every time they establish a new company.
Extensive checks have to be carried out to check the bona fides of individuals who are potential company officers and owners. Depending on the risk assessment these may include:
- Proof of ID
- Proof of address
- Personal references
- Bank statements
- Due diligence on business relationships
- Travel records
Many of these checks are required to be carried out face to face or certified by a competent authority.
Adherence to such processes ensures that the UK legal and regulatory system continues to hold the respect of the rest of the world.
Increasingly however, individuals, whether British citizens or not, choose to form a company using the online formation process offered by Companies House. The excellent service has certain advantages in being quick, cheap and easy to use.
One would anticipate that such a system would conform to all the due diligence that would apply were the company to be formed by a formation agent. But surprisingly that is not the case.
Company Registration Agents are classified as Trust or Company Service Providers, subject to audit and inspection to ensure that they are performing all this necessary due diligence. They have to be registered with HMRC or SRA if they are a legal firm. However, since Companies House is not considered a commercial provider of these services it is not required to subject users of its online registration system to this same due diligence. This applies whether the users, founders of these new companies, are based in the UK or abroad.
Analysis shows that around 20,000 companies a month are formed using Companies House Direct which means some 240,000 per annum are being formed without any due diligence whatsoever. This equates to 40% of the total number of companies formed per annum and the percentage is growing.
Whatever your view of Brexit it is probably a reality that the demand for UK registered companies from those outside of the UK will also continue to increase. But the door has been left open for illegitimate business people in the UK and beyond to swerve all the due diligence required from Company Registration Agents.
This issue has been raised with Companies House by the industry and others. It is now high time for this loophole to be closed.
Tracing its roots back to 1844, Companies House has long been responsible for ensuring that limited companies file all relevant documents about their businesses and for making that documentation publically available. It is one of the great trade offs of modern capitalism: in exchange for the great privilege of limited liability, companies allow transparency of their ownership and financial affairs.
Most of the types of documents available for UK companies are well known and well understood, Annual Accounts, Annual Returns, Confirmation Statements, Memoranda and Articles of Association, Mortgage Documents etc.
However there have always been more obscure documents for more niche applications. Chief amongst these is the Certificate of Good Standing (CGS), also known as Certificates of Authorisation, Certificates of Existence or Existence Certificates. Whilst sounding a little archaic, these certificates have long provided a valuable service to the British business community working internationally.
CGSs are used to prove that a company is incorporated and authorised to undertake business in a particular jurisdiction, in our case the UK. Specifically they show that the company has continued to exist since it was incorporated and no action is underway to remove the company from the register.
Differing from other official company documents whose filing is mandated, CGSs have traditionally been issued by Companies House on request. There are a number of reasons why a company might make this request with the most likely being related to initiatives to trade abroad
The CGS is signed by a Company House official and sent by post to the company’s registered office address. It includes:
- The company’s number and name
- The date of incorporation
- A declaration to validate uninterrupted existence from the time of incorporation
- A declaration that no action has been taken by Companies House to strike off the company and describe it as invalid
- A declaration that, as far as the Registrar is aware, the company is not in insolvency, subject to an administration order and no manager or receiver of the company’s property has been appointed.
Companies House can also include supplementary information if requested, such as:
- Registered Office address
- Names of Directors and Secretary
- Company objectives
- Issued share capital
- Nationalities of Directors
- Directors Dates of Birth
Most companies will never need a CGS, although some have used them to demonstrate that their filings are current. For business trading exclusively within the UK, a CGS may occasionally be required by banks when setting up new accounts, lenders as a clause of a loan offer or likely investors or business partners
However the key benefit of a CGS is to help companies looking to conduct businesses overseas. For instance setting up a foreign branch in another country will usually require a CGS to be tendered to the authorised registrar in that country. By indicating that the company is fulfilling its regulatory responsibilities, the certificate will show that the company is certified and well organised, and thus give confidence to potential suppliers, clients and other concerned parties.
The use of CGSs between member nations of the EU has declined as open access to documentation has increased. However business dealings between non EU and British companies have long been facilitated by CGSs. They are often a requirement in foreign contracts. It is a real possibility that when the UK leaves the EU our former partner nations in that organisation will resume their requirements for a CGS when dealing with British businesses.
In theory a CGS can be demanded for any company listed in the database of Companies House. The demand can be refused for certain reasons such as the company’s accounts or yearly returns are not up to date.
Strangely, however CGSs now seem to have become even more elusive. Towards the end of last year requests were met with the response that no more would be provided. Searching for Certificate of Good Standing on the web still leads one to the Companies House website but it is no longer possible to find any information about how to obtain them. At the last two Companies House user group meetings, Armadillo Chairman and CEO Emmanuel Cohen has asked why it is no longer possible to obtain CGSs, and was told that Companies House was no longer going to provide them..
With Brexit looming it would seem that anything that can help British businesses to thrive overseas should be cherished. Preparation needs to be in place for the increasing focus on dealing outside of the EU and for regulatory change within the EU. The latter in itself may cause an increase in requests for these certificates. Whether used by EU member states or throughout the rest of the world CGSs facilitate the purchase of property and the signing of import and export deals. If the Certificate of Good Standing is a casualty of Companies House cost cutting the timing is, to say the least, unfortunate.
This unexplained change threatens to leave UK businesses ill prepared for the challenges and opportunities associated with Brexit.
The Cayman Islands is a British Overseas Territory, comprising three islands in the western Caribbean. Best known for beach resorts, scuba diving, snorkelling sites, deep-sea fishing, endangered iguanas, red-footed boobies and corporate secrecy.
To date only limited information has been available about companies registered in this Caribbean idyll, typically a brief summary of registration details.
UK government’s requests to a number of British Overseas Territories to develop fully public registers of ownership have traditionally been met with reluctance by the government of the Cayman Islands, concerned about the privacy of beneficial owners. Now however there are plans to introduce a beneficial ownership register that seeks to strike an acceptable balance between transparency and privacy. The UK government has accepted the compromise proposed by Cayman.
The forthcoming legislation will require certain Cayman Islands companies to be included on the UBO (ultimate beneficial ownership) Register. It will list those who ultimately own or control more than 25 per cent of the equity, or voting rights or have the right to appoint or remove a majority of a company’s directors or LLC managers. Intermediate holding companies, through which other companies may be held, may also be listed.
The proposed system will allow the UK government, and other foreign authorities and Cayman domestic bodies with agreements in place, to access a UBO Register, via a Competent Authority i.e. any person or organisation that has the legally delegated authority to perform this particular function.
The register will not be publicly accessible, unless and until such access becomes an international standard.
So, one small step forward for law enforcement agencies in their fight against tax evasion and money laundering, but no great leap forward for those businesses involved in international trade who need to Know Their Customers. One wonders whether such a regulatory regime has a more or less promising future than the boobies and the iguanas.
British Entrepreneur Emmanuel Cohen Shares His Honest Opinion on the Business Environment in Ukraine
12 May 2017
Reintroducing the Orbis document ordering module
Global network and broad expertise
Global company formation services
Emmanuel Cohen – Chief Executive:
2017 is a special year for me. On January 6th, I celebrated 40 years in the industry. It has certainly been a roller coaster of a time. Always interesting, never boring. And guess what folks, I’m still at it. Am I successful? Well, life has taught me that the most important thing is family followed by friends. So if success is measured by that, then yes, I have been very lucky. I have an amazing family, great friends and many fun and interesting acquaintances. Business is always a challenge and it is coping with the unforeseen and overcoming the challenges that is the secret of success. It is a bit like bobsleigh driving, don’t worry about the last corner, prepare for the next. Bring it on!!
I was at an event a few weeks ago, chatting to one of our largest and longest standing business information customers, a top six accounting firm. We were discussing the fact that they had stuck with us for nearly 20 years and they said to me, “You know what Manny, you always deliver.”
That was great to hear since it is our 20th year as an online web company data base. At aRMadillo we devote ourselves to delivering to our clients, striving to be their leading supplier of business and financial information. To find out how we can help you to source UK or international company documents and reports please contact us.
Also this month I am pleased to welcome our new Sales Director to aRMadillo. Nigel Dickinson has been in the company information industry since 1984, with 30 years experience at Dun & Bradstreet in a variety of operational, marketing, sales and senior management positions. Since leaving D&B he has broadened his experience in the industry with consultancy and interim positions at Context4, Key Note and Caterlyst. I am sure Nigel will be a valuable addition to the aRMadillo team. You can contact him at firstname.lastname@example.org or 07595 779 651.
Happy New Year to you from all at aRMadillo Business Information. We wish you a successful and prosperous 2017 and look forward to supporting you in your success wherever possible.
Why not start the New Year with a review of your corporate document requirements. Contact us now for a free consultation.
Armadillo APP on BBC NEWS
Armadillo is an iPhone and Blackburry app that let you search and download company credit reports from more than 200 million businesses in 220 Countries, having you to decide which companies are safe to do business with.
Business App: ARMADILLO
“The Armadillo app brings company information to your fingertips and it’s tremendously useful when making business decisions on the move”.