I've blogged before on this subject quite a long time ago now, but the message remains the same: make sure your company's statutory books are up to date and you know where they are. I'm not referring here to the company's accounting records; I'm referring to the following registers that the company is legally obliged to keep i.e. registers of:
shareholders (sometimes also called 'members' or 'holders');
secretaries (if the company has one or more); and
charges (mortgages created by the company).
It's also good practice to keep original stock (share) transfer forms with the register of shareholders so that there's a paper trail of how shares have been transferred over the years. As you'll see from my blog of June 2013, I told a story then of how a lack of company books almost held up a company sale on which I was advising because the owners of the company couldn’t actually prove that they owned the company. Since then I've had several more examples of how a lack of company books can be a real impediment in a number situations: share sales, equity investments, shareholder disputes and corporate re-structurings to name four. In each of these situations it's absolutely imperative to know exactly who holds shares and in what numbers and proportions. Without that basic information it's always going to be difficult, and occasionally impossible, to advise you properly on these kinds of matter, because if it isn't clear what the starting point is, it's going to make it awkward to get to where you want to be.
Just to be clear, the existence of a share certificate is not proof of who owns a share; the existence of a record at Companies House, on a company's latest Annual Return, is not proof of who owns a share. Both of those things are simply evidence of ownership. The only proof of who owns the shares is the register of shareholders, and that register is the 'document of title' to the shares (in much the same way as the title deeds to your house are the document of title to your house - the fact that you live there and have the keys is simply evidence of ownership). The Companies Act 2006 even gives shareholders a right to inspect the register to make sure it's properly written up.
So why does this matter? Well, at the risk of labouring the point, if you think you're a shareholder but your name isn't in the register of shareholders (or if there isn’t such a register) then you don't have the rights of a shareholder. It's as simple as that and it could make you very vulnerable. As someone who tries to avoid quoting cases this is going against the grain, but in the recent (2013) case of Eckerle v Wickeder Westfalenstahl GmbH, the English High Court reiterated the long-standing principle that the holder of a share is the person whose name is registered in the register of shareholders. My view is that a different conclusion would have been dangerous - after all, if there wasn't a nice clear rule, there'd be all kinds of scope for people to argue that they have shares when they don't. As it stands, the position is unequivocal.
So if you think you have shares, make sure you see the register of members containing your name. Ask the company to give you a certified copy of the register (as well as the share certificate). If you’re a director of the company, make sure the books/registers are written up correctly. Once you've done that, put them somewhere safe. They should really be kept at the registered office but for peace of mind, send them to your lawyer or your accountant for safe-keeping. We offer a registered office and company secretarial service and would be happy to take on this responsibility for you, for a fixed price.
My phone number is 0131 2471260, you can email me on firstname.lastname@example.org and I look forward to hearing from you for a free, no obligation chat about any of the issues raised in this blog.