The pitfalls of incorporating with Model Articles
Iwan Thomas | 10.01.2020
19.11.2019 Kirsty Bowyer
If you are planning on selling your company, at some stage in the process you will be asked “Do you know where the company’s statutory registers are and are they written up-to-date to show the current shareholders?” An increasingly common response to this is “Everything to do with the company and our shareholding is shown at Companies House.”
It is a common misconception that Companies House shows the definitive position of who owns shares in a company and it can cause significant issues if a company is being sold and they cannot be located or are incorrectly written up.
Instead, the statutory registers of a company should be viewed in the same way as you would view the title deeds to your house. Don’t underestimate their importance!
A company’s statutory registers, which are required to be kept in accordance with the Companies Act 2006, should set out information relating to:
1) Members (or shareholders) of the company: the register of members should illustrate what number and class of shares are held (or have previously been held) by each member (or previous member).
The register of members will be required to prove who legally owns the shares in a company.
A company will often also maintain a register of applications and allotments and a register of transfers demonstrating the issue and transfer of shares to each member (or previous member) and which will sit alongside and tie in with the register of members to ease the review of a shareholder’s chain of ownership.
2) Directors and company secretary: the register of directors, register of secretaries and register of directors’ residential addresses should set out certain particulars about a company’s directors and, if any, company secretary.
3) Persons with significant control (PSC): the PSC register came into existence on 6 April 2016 and requires information to be maintained about people who can influence or control a company by reference to specific conditions.
4) Charges: the register of charges is no longer a legal requirement relating to charges created on or after 6 April 2013, however, continues to apply for charges created before 6 April 2013.
The filing of an annual return or confirmation statement does not relieve a company from the requirement to maintain its statutory registers. Failure to do so is an offence under the Companies Act 2006 and punishable by a fine (which could also result in daily fines for each day the company fails to rectify its breach).
If you’re thinking about selling your company, it is imperative that you know where your statutory registers are kept and ensure that they are correctly written up-to-date. Review of these by a buyer’s solicitor will form part of the legal due diligence process and the originals will have to be delivered to a buyer on completion of any sale. Historically, statutory registers were maintained in hard copy (usually a bound book or loose leaf within a ring binder), however, they are increasingly being maintained in an electronic form. Often, an accountant or solicitor may hold the statutory books.
It may be that errors in the writing up of statutory registers cannot be rectified without a court application and therefore it is important that you seek proper legal advice before attempting to write up any registers.
If there are issues with a company’s statutory registers on a sale of a company, it may be that the seller(s) will be required to give an indemnity to the buyer. There may, however, be circumstances where an indemnity will not be sufficient for a buyer. Ownership of the shares being sold goes to the heart of the sale of a company and it is therefore understandable that a buyer may want other action to be taken, prior to completion, to remedy the situation.
It may be possible to reconstitute the statutory books if they have been lost or destroyed depending on the other documentation available and the history of the share ownership. In more complicated circumstances, it may be that a court application is required for rectification of the registers. This process is inevitably time-consuming (potentially causing difficulties to a sale timetable) and expensive.
If you’re thinking about selling your business or simply want to carry out a house-keeping exercise, we can review your statutory registers and paperwork for you and ensure they are suitably maintained. Please contact Kirsty Bowyer, Associate by tel: 02380 718 883 or by email: email@example.com