Stemming from responses the Government received to its red tape challenge (see our May 2011 newsletter article for more information), BIS has published a consultation seeking views on the current regime for choosing and registering company names and the possibilities for reform. The consultation closes on 22 May 2013. To see a copy of the consultation, click here.

Background

Feedback to the red tape challenge suggested that the current rules can be confusing and difficult to negotiate, and that if a proposed name falls foul of the regulations there can often be a lengthy delay before registration finally takes place. The consultation notes that such hold-ups can be crucial in a company's life and that it is, therefore, necessary to consider whether all of the legislation regarding choice and registration of names (either on incorporation or on a change of name) is required.

Current regime

The current regime is one of prior approval; before a company name is registered, it must be established that it does not fall foul of the relevant provisions. Once registered, it is very unlikely that a company name will have to be changed. The relevant provisions are contained in:

  • primary legislation, namely, the Companies Act 2006
  • statutory instruments (the Regulations) which amplify the primary legislation.

The consultation notes that many of the existing provisions are designed to protect the public when dealing with companies. For example, unique company names make it easy to distinguish one company from another without having to check registered numbers, and restrictions on the use of certain words, like charity or bank, avoid misleading connotations.

The proposals

However, the consultation goes on to say that, in many cases, the harm that the provisions are intended to prevent rarely comes to pass. It is, therefore, firstly suggested that the Regulations could be removed in their entirety on the basis that:

  • a base level of protection would be retained in the primary legislation (such as the restrictions on the use of offensive words and names that suggest a government connection)
  • if there is a problem with a company name, an aggrieved person could make a complaint - it would be this complaints process, rather than the current prior approval system, that would then determine whether a company name is appropriate or should be changed.

As an alternative to completely repealing the Regulations, the consultation asks whether they should be retained but simplified. It then goes on to focus on particular provisions of the Regulations which are seen as most problematic – these are the rules designed to:

  • ensure that certain words and symbols are disregarded when ascertaining whether a company name is the same as another already on the register (the "same as" rules
  • determine whether inclusion of a certain word in a company name is likely to mislead the public (the "sensitive name" rules).

The consultation asks, in each case, whether the particular rules should be repealed in their entirety or retained but reduced in scope.

As regards the "same as rules", repeal would enable a company to incorporate with any name as long as it is not identical to another already on the register (and complies with primary legislation). On the other hand, the rules could be retained but simplified - for example, words such as exports, imports, group and holdings could be removed from the list giving companies more scope to differentiate their company from another.

As regards the "sensitive name" rules, BIS notes that they are intended to prevent the public being misled as to the nature or status of a business (by, for example, including a word like charity or institute) but it questions whether the words on the list are relevant for current day purposes. For example, it is suggested that "national" words such as England, Welsh etc no longer need to be restricted, and that other words like chamber, international and register could be removed as the risk of their misuse is considered to be low. However, it is noted that other words such as accredited, charity, institute, insurance, police and university are likely to still require protection (in addition, certain words such as bank and building society will continue to be protected by primary legislation). As such, whilst it is suggested that the "sensitive name" rules could be repealed, it is likely that some restrictions would need to be retained.

Comment

Whilst removing or simplifying the Regulations is likely to make the registration of company names easier, it is not entirely clear what proportion of companies are facing difficulties with the existing regime. Whilst some may face delays and difficulties, does the number justify amending the regime? That said, it is probably true to say that lists of words in the "same as" and "sensitive name" lists should be kept under review to ensure they reflect modern day requirements.

Whilst the consultation focuses on the protection of the public, the fact that the rules provide a degree of protection to companies appears overlooked. The current regime is beneficial to companies in that once the requirements have been complied with, and a name registered, it is unlikely that it will need to be changed. If the rules were to be altered so that any name (as long as not identical to another, and compliant with primary legislation) could be used unless a complaint was received it may mean:

  • companies could register similar names to existing company names thereby enabling them to profit from or damage another company's goodwill - companies may, therefore, need to closely monitor the register of names to ensure this is not a problem and to raise objections if it is
  • whilst one set of regulations is removed they may simply be replaced by another – any complaints system will need a framework, not least of all to prevent it being abused or used spuriously
  • there would be far less certainty that goodwill in a registered name could be built up without it having to be changed at some time in the future.