OVERSEAS COMPANIES IN GREAT BRITAN
OPENING A BRANCH IN UK
Many organisations want to expand into the UK but for many reasons may not want to establish an incorporated entity in the UK. Instead they may wish to register a branch or place of business as an overseas company. Some companies receive tax breaks and government development grants by continuing to be incorporated in their home country while they attempt to establish a UK operation. The fact that a foreign company is carrying on business in Great Britain does not automatically mean that the company has to register with Companies House. However, the Companies Act 1985 requires every overseas company which establishes some type of place of business in Great Britain to deliver certain documents to Companies House. To this end, a "place of business" is a premise where there is a physical or visible indication that the company may be contacted there. An overseas company also has to register if it habitually conducts business from a particular location in Great Britain even if there is no physical sign of the company's connection with it.
It has long been a requirement that "overseas companies" establishing a "place of business in Great Britain" have to comply with certain registration requirements at the companies' registry either in England and Wales or in Scotland. Since 1993, there has been a separate set of provisions which apply where an overseas company opens a "branch" in Great Britain (i.e. England and Wales and Scotland ).
In order to determine, therefore, which set of regulations apply to a foreign company setting up business in Great Britain, it is now necessary to consider whether the company has opened a branch, or established a place of business. (Note that where a foreign company has created a presence in some way which is neither a branch nor a place of business, no registration requirements will apply).
This section sets out to explain the distinction between a branch and place of business and to provide an outline of the registration and related requirements for all overseas companies that establish such place of business or branch in Great Britain. However, this is only an outline guide, and further legal advice should be sought where necessary.
NB: In March 1998 the Department of Trade and Industry launched a review of the framework of company law with a view to developing a simple, modern and cost effective infrastructure for carrying out business activity. An independent steering was formed to oversee the management of the review and, following an extensive process of consultation, presented its final report on 26 July 2001. The proposals cover a whole raft of areas, including company reporting and audit, directors' duties, obligations on small and private companies, and institutional arrangements. One of the recommendations made is for the law on overseas companies to be simplified, in particular replacing the two overlapping regimes with a single set of procedures and updating disclosure requirements. The first White Paper which the government has produced as a result of this process endorses the recommendations with respect to overseas companies, although no date has yet been set for legislation to be passed.
WHAT IS A BRANCH?
A branch is a part of a company that is organised so as to conduct business on behalf of a company as opposed to carrying on business which is merely ancillary or incidental to the company's business as a whole. In other words a person will be able to deal direct with a branch of the foreign company in Great Britain rather than with that company in its country of incorporation. Other types of commercial enterprises (for instance partnerships and unincorporated bodies (cannot register in Great Britain as a branch).
WHAT IS A PLACE OF BUSINESS?
A place of business is premises where there is a physical or visible indication that the company may be contacted there, or a particular location where the company habitually conducts business from, even if there is no physical sign of the company's connection with it. However, as the business carried on at that place is only ancillary or incidental to the company's business as a whole, it does not amount to a branch. Such activities might include internal computer processing, warehousing or simply a representative office. Note that where there is no physical location in Great Britain, registration is not required. For example, an independent agent who conducts business on behalf of the company is not a place of business of an overseas company. Neither is an occasional location such as a hotel where a director may conduct business during periodic visits to this country.
Overseas companies that establish a business in Great Britain without incorporating it as a GB company are currently required to register specified company information at Companies House (e.g. details of the company constitution, directors, addresses etc). These registration requirements are designed to provide protection for third parties in Great Britain who have dealings with the business (and hence with the overseas company). For example, creditors and others are able to access information about the company, including its accounts.
The current law is very complex. There are two systems of registration: one based on the requirements of an EC Directive on overseas companies (the 11th Company Law Directive); and an older pre-existing system that had developed separately in Great Britain. The proposal is to introduce a new single system based on the EC Directive and thus to achieve significant simplification of the registration requirements.
The complexity of the current rules makes compliance more difficult, because there is a risk that overseas companies will be unsure which of the two existing regimes they should follow. Increasing the clarity and accessibility of the rules can therefore help raise compliance. It will also enable Companies House and other Government bodies to publicise more effectively the rules that should be followed.
SCALE AND EFFECT
Many overseas companies seeking opportunities in Great Britain set up a GB company and are covered by UK company law in the normal way. However, sometimes an overseas company may choose to establish a business in Great Britain without forming a new company. There are currently around 7,400 registered overseas companies which have chosen this course.
Three options have been identified for regulating overseas companies which establish a place of business in Great Britain without incorporating it as a GB company:
Option 1 - to introduce a single "branch" registration regime based on the existing concept of "branches" and the registration requirements set out in the 11th Company Law Directive. ("Branch" implies a more significant presence than a mere place of business).
Option 2 - to introduce a single "place of business" registration regime based on the existing concept of "place of business" and the registration requirements set out in the 11* Company Law Directive. (A "place of business" means a specified or identifiable place at which the company carries on business that has more than a fleeting character; where there is some visible sign or physical indication that the company has a connection with particular premises. Thus "place of business" encompasses both a branch and a presence less substantial than a branch).
Option 3 - to maintain the current dual registration regime: one for "branches" (which implements the 11th Company Law Directive); and one for "places of business" which are not branches. The registration requirements are similar, but not identical under the two regimes, and due to the Directive, slightly more information needs to be provided by those overseas companies subject to the "branch" regime.
BENEFITS OR RISKS OF EACH OPTION
Option 1 - introducing a single regime based on the existing concept of "branches" would simplify the registration system and be compatible with the Directive. A single registration regime would remove the need for overseas companies to face complex questions on initial registration and subsequently as to whether their activities here amount to those of a branch or a place of business. It would also remove the need for the current complex transitional provisions that enable overseas companies to transfer from one regime to the other. Under this option, only those companies establishing businesses considered to be "branches" would be required to register. This would reduce the scope of overseas companies required to register information at Companies House - thus only the more substantial presence of a "branch" would have to be registered. This would reduce the information available to third parties, including the Inland Revenue.
Option 2 - introducing a single regime based on the existing concept of "place of business" and the registration requirements set out in the Directive would simplify the regime and be compatible with the Directive. The other benefits stated in paragraph 8 apply equally to this option. There is already a major body of British case law on what constitutes an established place of business and it is clear that the concept of established place of business encompasses branches. This option would therefore simplify the system, without reducing the information that is publicly available, as outlined under Option 1. It would increase slightly the filing requirements for those overseas companies that would currently fall within the "place of business" rather than the "branch" regime.
Option 3 - maintaining the current dual registration regimes would not meet the objective of simplifying the rules. Overseas companies would continue to face complex questions on initial registration and subsequently, and the rules themselves would be more complex. Transitional provisions would also continue to be needed to enable overseas companies to transfer from one regime to the other.
Only Option 2 meets the objective of reforming the law in a simple and effective way compatible with EC requirements, whilst preserving the amount of information published at Companies House about overseas companies that have established a place of business here. It is thus the preferred choice.
BRANCH REGISTRATION, FILING AND DISCLOSURE
Initial Registration. If an overseas company opens a branch in Great Britain then it is required to register its branch with the Registrar of Companies (either the Registrar of Companies for England and Wales, or the Registrar of Companies for Scotland, depending on the location of the branch (the "Registrar")). Within one month of having opened a branch in a part of Great Britain, an overseas company must deliver the following to the Registrar:
- a completed form BR1 (containing much detail about the company and its officers;
- a certified copy (of the company's constitutional documents (e.g. bylaws, charter, statute, operating agreement); a copy of the latest set of audited accounts required to be published by parent law; and the current registration fee).
Filing requirements with respect to alterations
Any changes to the original information filed need to be notified to the Registrar within 21 days of such change, on the following forms:
Form BR2 - Changes to the constitutional documents of an overseas company.
Form BR3 - Changes to the company details, including the head office address, the parent law, the place of registration, and the issued share capital of the company.
Form BR4 - Changes of director or secretary or of their particulars.
Form BR5 -Change in details of the branch, including address and the nature of the business.
Form BRG - Change of person authorised to accept process of service or to represent the company in the business of the branch, or of their particulars.
Form BR7 - Change of branch against which the constitutional documents and accounts of the company are registered.
Form 225 - Change of accounting reference date of a company subject to filing accounts under section 700 of the Companies Act 1985.
NOTIFICATION OF INSOLVENCY
If an overseas company with a branch in Great Britain is being wound up outside Great Britain it must tell the Registrar of Companies. The type of winding up taking place will determine which form is required.
Branches of overseas companies whose parent law requires the publication of accounts which have been audited must deliver a copy of those accounts (together with a certified translation if necessary) within three months of public disclosure. This applies to all companies from European Economic Area (EEA) Member States ven where a company is categorised as "small" and allowed to deliver modified accounts, even to the extent of them being unaudited.
All branches of overseas companies whose parent law does not require the publication of audited accounts must within 13 months of a company's accounting reference date (the date in each year to which the accounts are to be made up), deliver accounts to Companies House that comply with section 700 of the Companies Act 1985 (as amended by Statutory Instrument 1990 No. 440). Such accounts are known as "Section 700 Accounts" and must relate to the company and not solely to the branch. Where the accounting period is the overseas company's first and is a period longer than 12 months the Section 700 Accounts musts be filed within 13 months of the first anniversary of the date of establishing a branch in Great Britain. Section 700 Accounts consist of, as a minimum, a balance sheet and profit and loss account, with a minimum of notes. No directors' or auditors' report is required, neither are details of directors' emoluments or pension contributions. A filing fee is payable on filing each set of accounts.
PLACE OF BUSINESS REGISTRATION
FILING AND DISCLOSURE – REQUIREMENTS
Within one month of establishing a place of business in Great Britain, the following must be delivered to the Registrar: completed form 691 (containing much detail about the company and its officers); a certified copy (of the company's constitutional documents (e.g. charter, statute, operating agreement)); and the current registration fee.
Filing requirements with respect to alterations
Form 692 (1) (a) - Changes to the constitutional documents of an overseas company. Form 692 (1) (b) - Changes of the directors or secretary, or of their particulars.
Form 692(1) (c) - Changes of the person authorised to accept service of process on behalf of the overseas company, or of their particulars.
Form 692 (2) - Change of corporate name of an overseas company.
Form 225 - Change of the accounting reference date of an overseas company.
Isle of Man and Channel Island companies. Such companies that establish a place of business in Great Britain also need to file an annual return with the Registrar.
PROVISIONS AFFECTING OVERSEAS COMPANIES GENERALLY
The name of the company
The company must initially be registered in its corporate name, but thereafter it becomes subject to the same restrictions on company names as British companies. Briefly this means that a name is unacceptable if it is the "same as" a name already on the register or contains certain sensitive words or expressions which cannot be justified.
If a company name is unacceptable, the Secretary of State will order the company to adopt an acceptable business name for use in Great Britain. The order will specify a period during which the company must register the change of name. The company will be unable to conduct business in Great Britain in its corporate name once the period stated in the notice has expired.
What are certified copies of documents? Constitutional documents and accounts must be in their original language but documents not in English must be accompanied by a certified translation into English. The certification of the constitution must be made in the country of incorporation. Details of the methods of certifications are given in the notes to the relevant forms.
What about charges? Briefly the requirements are that all overseas companies which have registered a branch or a place of business which create a mortgage or charge in Great Britain must register the charge at Companies House. To register a charge the appropriate form must be sent to the Registrar of Companies within 21 days of the creation date of the charge. In addition, an overseas company is required to keep at its branch or principal place of business in England and Wales and/or (as the case may be) Scotland, a register of charges. The register, and copies of the charges, are open to public inspection.
NB: charges must also be presented for registration for an overseas company that has not registered a branch or place of business in Great Britain as such charges are subject to the "Slavenburg" ruling. Although the Registrar is unlikely to register the charge without prior registration b the overseas company either as a branch or a place of business, delivery of the particulars does prevent the charge being rendered void against any creditor.
The overseas company must exhibit conspicuously at every place where it establishes a place of business, and on all billheads and letter paper, and in all its notices and other official publications, its name, the country in which it is incorporated and, where the liability of its members is limited, that fact. If the overseas company chooses to give details of any director on letterheads or stationery, it must give the same details of all the directors.
If it operates under a name other than its full corporate name, in order to enable those dealing with such business to know the identity of the owning overseas company, the actual corporate name of the overseas company and its business or other address in Great Britain at which documents may be served, must be displayed at its premises and on business stationery and this information must also be supplied on request to any customer or supplier.
As in the case of registration of the corporate name, the approval of the Secretary of State is required if a business name contains certain words or expressions which are set out in regulations approved by parliament or if the name gives the impression that the business is connected with H.M. Government or a local authority.
In addition to such general publicity requirements, a branch must state the following particulars on all letter paper and order forms used in carrying on the business of the branch: Place of registration; Registered number. If the company is not from an EU member state but is registered in its country of incorporation: the identity of the registry in which the company is registered in its country of incorporation; its registered number in its country of incorporation; If the company is from a non-EU member state: the legal form of the company; the location of its head office; and if applicable, the fact that it has been wound up.
What if the activities in Great Britain increase or decrease?
If the activities of a limited company that registers a place of business change to the extent that it now qualifies as a branch, it must register as such by delivering a completed Form BR1 to the Registrar with the registration fee. In such cases, if the information previously filed with the Registrar is up to date, copies of the constitutional documents and directors' details are not required.
Similarly, if a branch of an overseas company changes to the extent that it only qualifies as a place of business then it must re-register as such by delivering a completed Form 691 together with the registration fee. If the information previously filed with the Registrar is up to date, copies of the constitutional documents and directors' details are not required.
On conversion of a branch to a place of business, any establishment in another part of the United Kingdom, for example, Northern Ireland, included under the original branch registration must be registered as a place of business.
A company cannot have both a place of business registration and a branch registration in the UK at the same time. A branch registration will take precedence over a place of business registrations that must be closed.
What if a company closes its activities?
If a company closes a place of business or a branch in Great Britain, it must give notice to this effect by delivering a letter signed by an officer or authorized person of the company to the Registrar. All obligations of the company to deliver documents to the Registrar cease from the date of receipt of the notice. If a company closes its only branch in Great Britain then the company record will be closed. If it is not the only branch, but was originally the principal branch, then Form BR7 must be delivered to notify the Registrar of the branch at which the constitutional documents are kept.
Northern Ireland (which is a part of the United Kingdom but not part of Great Britain ) has its own companies legislation.
Is branch registration applicable?
For a branch registration, there must be a person who is able to make binding decisions on behalf of the company. If there is no one who can fulfill this role, a place of business registration may be applicable.
The exact name, as given in the constitutional documents, must be shown. Do not include the legal form unless it is part of the name. For example, do not print "ABC SA" where "SA" is not part of the corporate name - simply print "ABC".
If no business name is given, the corporate name will automatically serve as the branch name.
IDENTIFY OF REGISTER
Give the details of the registry at which the company is registered overseas.
This is the form and means of liability of the company. For example, private company limited by shares, public company limited by shares etc. Simply showing "corporation" is not acceptable.
The first question must be completed on all applications.
The law under which the company was registered in the country of origin.
Applies to companies that are required to publicly disclose audited accounts in the country of origin. If this does not apply, insert "N/A" in the spaces provided.
OBJECTS OF THE COMPANY
These are the activities that the company does, for example, marketing, sales, general trading company etc. Entries such as "To make a profit" are not acceptable.
ISSUED SHARE CAPITAL/CURRENCY
The total value of the shares issued is required together with the currency.
The constitutional documents must be certified to be true copies of the original documents held at the registry in the country of incorporation. If the original constitutional documents are in a language other than English, a certified translation of the constitutional documents must be supplied.
Note 9 of form BR1 would include a Court translator.
DATE BRANCH OPENED
This is the date that the branch is recognized as having established itself in Great Britain. A future date is not acceptable.
BUSINESS CARRIED ON AT BRANCH
This may not be the same as the corporate objects; for example, a manufacturing company may have a sales outlet in Great Britain.
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