Can you prove your own company? Many business owners may assume they can easily answer this question: of course they own their company, it has their name on it! Surprisingly, however, it can often be a stumbling block from a legal perspective.
It’s commonly assumed that Companies House, as the branch of the UK government in charge of corporate entities, is the ultimate authority on company matters. This is true in some respects (for example, a company must be validly registered at Companies House in order to exist at all). However, the public registers maintained by Companies House are not, in fact, the definitive evidence of a company’s owners.
Under the Companies Act 2006, every UK company is required to keep and update certain registers, called statutory registers. These include registers of its shareholders (or members), of its directors and secretaries and anyone who exerts significant control of the company and its activities. The register of members, as kept by the company, is deemed to be the final word on who the company’s owners actually are and takes precedence over any other sources (including the records of Companies House’s).
It should be noted that, in recent years, Companies House has allowed companies to maintain their registers on its own public registers (rather than being kept privately by the company). However, in practice, most companies prefer to maintain their own registers: doing so allows them to keep personal details (such as dates of birth and home addresses) off the public record. If you believe your company is making use of this service, it is worth checking this is definitely the case to avoid any confusion arising later down the line and it is even more important that you keep the public registers fully up to date.
The risks of neglecting your statutory registers
In an ideal world, the company’s registers and the records kept at Companies House would always mirror each other perfectly. However, it is very easy to overlook a necessary filing and it is not uncommon for registers to be neglected for considerable periods of time. Whilst this may not seem like a major issue in the context of your business, it can cause significant problems should a third party (for example, a potential buyer, lender or investor) want to investigate your company.
Any properly advised party looking to engage in a major transaction with a company should always review the company’s ownership structure and history to ensure that it does belong to those who claim it. Such investigations often bring to light historic discrepancies or errors in a company’s registers. In a worst case scenario, a company may be required to obtain a court order to rectify its registers, which is an extremely costly and time-consuming process and has been known to cause otherwise-interested third parties to walk away.
It is also worth noting that it is a criminal offence for a company and its officers not to maintain the required statutory registers (although it is quite rare for Companies House to seek prosecution).
For these reasons), we would always advise any shareholder or director to ensure that their company’s statutory registers are in good shape.
What you can do
The first question to ask yourself is – do you know where your company’s statutory registers are? It’s not unheard of for the registers to be lost deep in a company’s archives, which usually also indicates that they have not been kept fully up-to-date. Alternatively, the registers may be kept by a company’s accountants or other advisers.
Once you have located the registers, you should carefully review them to ensure that they reflect the current position of the company as regards its shareholders, directors, secretaries and persons with significant control and that all related updates have been accurately and clearly recorded. There is a long list of events that require updates to be made to the statutory registers (more information can be found on the Government’s website), including:
- any changes of a shareholder or director’s details (for example, changes of address, or a name change following marriage);
- any issues of new shares in the company’s capital;
- any transfers of shares to or from any shareholder; and
- any changes in share class or designation.
If, as is often the case for older companies, the statutory registers are currently in hard copy format, you may want to consider converting them into electronic form for ease of future maintenance. This is perfectly acceptable but remember that this means that electronic version control becomes critical. You must always be clear which file is the definitive version of the register.
If you are unsure or need support, it is always advisable to take professional advice when administering your company’s statutory registers. We can assist with keeping and maintaining statutory registers on behalf of clients’ companies. Our team also has extensive experience in resolving queries and issues arising from statutory registers of companies, both on behalf of the companies themselves and from the perspective of interested third parties.
For more details, please get in touch, or see the Progeny Club Legal subscription offering for details.