We often find that shareholders and directors have no, or very little, knowledge of the existence or whereabouts of their company’s statutory registers. It is not uncommon to discover that the statutory registers don’t exist at all! This reflects the fact that shareholders and directors typically have little, if any, understanding of the function and significance of their company’s statutory registers. The absence of well-maintained statutory registers will be a cause of significant problems when a company is sold as the buyer will be unable to establish and verify what the share capital is and who owns the shares. There are other situations too when the absence of well-maintained statutory registers will be a source of problems.
If you are unsure of what and where your company’s statutory registers are, then this article will help you.
What are the statutory registers and why are they so important?
Very simply, a company’s statutory registers are its title documents. The registers of allotments, transfers and members identify and provide proof of the company’s share capital and who owns the shares. For example, when a company allots and issues new shares, those shares are not issued until their allotment is entered in the register of allotments. When shares are transferred, the legal title to those shares does not transfer to the transferee until the transfer is entered in the registers of transfers and members. So, if a shareholder transfers shares and the transfer is not entered in the registers of transfers and members, the transferor of those shares remains the legal owner of them and is the person with the right to exercise voting rights and receive dividends.
But surely the company’s file at Companies House is conclusive evidence of its share capital and shareholders?
No, this is common mistake that many people make. If the underlying transaction has not been carried out correctly, or at all, then recording the transaction on the company’s file at Companies House will not cure the defects. It simply means that the company’s Companies House file is incorrect.
Unless the shareholders make a specific election to maintain the company’s statutory records at Companies House, then the company’s file at Companies House is just a record of the company’s status and certain transactions that have taken place. There is an obligation to file accounts, confirmation statements and PSC statements at least annually, and to notify Companies House when certain other events take place. For example, if a company buys-back shares or amends its articles of association, then Companies House must be notified of this, but Companies House does not check that the notified events have been correctly carried out. If a share buy-back is notified to Companies House on the correct forms, then those forms will be placed on the Company’s register, but if the transaction was not carried out correctly, then the buy-back may be void and the fact that it is recorded at Companies House is irrelevant. Likewise, if a confirmation statement on file at Companies House records a change of ownership of shares, but there is no signed and dated stock transfer form and/or the transfer was not registered in the company’s register of members, then the transfer has not happened, regardless of the information on the confirmation statement.
So what do the statutory registers look like?
The statutory registers may be kept in hard or soft copy form. Typically they will comprise registers of allotments, transfers, members, directors, charges, persons of significant control, minutes and resolutions. If they are not kept at the company’s registered office address, then Companies House must be notified of where they are kept. The register of members must be made available for inspection by the company’s members.
I don’t know if my company has statutory registers, how do I find out?
If you don’t know if your company has statutory registers you should ask the company’s accountant and solicitor if they hold the registers, or know where they are. If your company was set up for you by your accountant or solicitor then they may be holding the statutory registers. If they are not, then they should know if any statutory registers were written up on incorporation and, if so, what happened to them. Once you’ve located the registers you should make sure that they are up to date and that the Company’s file at Companies House is consistent with the information in the registers.
If you cannot locate any statutory registers for your company, then it will be necessary to constitute a set of registers. This can be done provided all the evidence of the company’s share transactions and share ownership since incorporation is available.
What is the election referred to above?
It is possible for the company’s shareholders to elect for the information that must otherwise be kept in the Company’s registers of allotments and members to be kept instead on an index at Companies House. The election must be made in a prescribed form and sent to Companies House. Whilst the election is in force, all of the information that is required to be entered in the registers of allotments and members must be filed instead on the company’s index at Companies House.
If you have any queries or issues concerning your company’s statutory books (or lack of them) the members of Lester Aldridge’s corporate team will be happy to help and can be contacted by calling Susan Cowan or Edward Adamson on 01202 786183.