When acting for a client on a company sale, purchase or restructure, one of the first questions we ask is “can we see a copy of the Statutory Registers/Books” and 9 times of our 10 the response is normally either a puzzled look or “what are they?”
Statutory Books, and their purpose, seem to be one of the best kept secrets in company law. For those clients who do know, they usually admit that they have been sitting in a draw somewhere gathering dust and they have no idea if they are up to date or not.
What are they and why are they important?
The Statutory Books of a Company are a collection of registers which set out the historical and present position about:
(a) who the shareholders/members of the Company are;
(b) what share transfers have taken place;
(c) what share allotments have been made;
(d) who the officers of the Company are and have been; and
(e) details of mortgages/charges
They may also include minute books for the directors and shareholders meetings and other corporate documents such as written resolutions.
Limited companies are legally required to keep and maintain these registers. It is the responsibility of the directors (or a company secretary if one is appointed) to ensure that the registers are accurate, up to date and made available for public inspection at the company’s registered office or an appropriate Single Alternate Inspection Location (SAIL).
Register of Members
The most important register in the Statutory Books is the register of members. This register details the past and existing shareholders of the Company and how many shares they held or hold. Unlike the other registers, failure to maintain the register of members is an offence under the Companies Act 2006, which could result in the company and its directors being liable to a fine of up to £1,000, plus a further sum of £100 per day for each day that the breach continues.
A lot of clients ask why there is a legal requirement to maintain a register of members when they diligently complete the company’s annual return to Companies House every year. The reason for this is that an annual return is just a snapshot of the company’s shareholders on one day of the year. Although there is a requirement to notify Companies House when new shares are allotted, there is no requirement to do so when existing shares are transferred.
Therefore if a share transfer is completed the day after the annual return is filed at Companies House, this will not be notified to Companies House until the next annual return almost a year later.
For this reason, the only accurate record of a company’s shareholders at any time will be its register of members which should be written up immediately after any change in the company’s shareholding. Furthermore, if there is a dispute in relation to the company’s shareholding, the Companies Court will ask to see the register of members as evidence of who the existing shareholders are.
For many diligent business owners, hearing that they have been in breach of the Companies Act legislation, possibly for some time, and that they may not be able to evidence that they actually own their shares, can come as a bit of shock. However, this contravention can usually be remedied fairly easily by reconstituting the registers and approving these at a board meeting of the company.
Inspection of Statutory Registers
Companies are required by law to make their statutory records available for public inspection at their registered office or SAIL address every working day between the hours of 9.00am to 3.00pm. Advanced notice of the date and time of inspection must be provided to the company – a minimum of two days’ notice is required if the requested inspection date coincides with the notice period of a general meeting of the shareholders, or written members resolution. In all of the cases, the required notice period is 10 working days.
Importance of the Statutory Books when you come to sell your company
As part of a company sale process, the buyer’s solicitors will request the statutory books and, at this stage, if they have not been properly kept they will require them to be reconstituted. If there are any gaps that cannot be remedied, the buyers may also require protection in the purchase agreement whereby the seller will undertake to indemnify the buyer for any loss they suffer as a result of the books not having been properly maintained.
For this reason, and due to the challenges of reconstituting statutory books when complete historical information is not available, it is prudent to ensure that the statutory books are up to date prior to commencing the sale process to avoid the unnecessary complications that could occur during what can already be a stressful time for the sellers.
Company Law Changes – What you need to know
From January 2016, companies will be required to keep a register of their beneficial owner, or Person who has Significant Control (PSCs), and make it available for inspection. From next April, companies will have to report details of their PSCs to Companies House.
A PSC is someone who (alone or jointly) has significant control over a company. There are five ways in which a company or individual may satisfy the test. For instance, if an individual holds more than 25% of the company’s shares or voting rights, or can appoint a majority of its directors, he will have significant control. The other limbs of the test are more complex and are intended to catch details of those will significant influence or control, however arising.
If you require us to undertake a review and or maintain your statutory books, for advice on reconstituting your statutory books or any other advice in relation to preparing your business for sale then please contact Brett Cooper on 01254 828300 or firstname.lastname@example.org