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Advice

Statutory books and records - they won’t float your boat, but don’t let them sink it!

If not properly kept and maintained, statutory books and records could cause unanticipated anxiety for company directors and shareholders alike.

It may just take a minute to protect a director but don’t let your statutory books and records be the thing that lets you down when plotting your route to fundraising or exit. A company’s statutory books and records are likely to be among the least exciting aspects of consideration when evaluating potential investment opportunities, incentivisation measures and company sales.

If not properly kept and maintained, however, statutory books and records could easily cause unanticipated anxiety for company directors and shareholders alike. Failure to keep and maintain certain information within a company’s statutory books and records is an offence and both a company’s directors and the company itself may face penalties.

However, companies, directors and other key stakeholders should not underestimate the commercial importance of keeping such information up to date. Failure to do so could deter a nervous investor, become a particular headache for management when negotiating incentive packages (such as share options and the impact of any anti-dilution protection) and may even derail a potential company sale or impact completion timetabling.

A rose by any other name...

Perhaps somewhat confusingly, a company’s statutory books and records are also commonly referred to as its books, records, statutory records and statutory registers. However, ultimately they comprise a collection of registers and information (listed below) required by the Companies Act 2006 (Act).  Think of a company’s statutory books and records as its DNA. In the case of a private limited company, they comprise the following registers and information:

  • register of directors (section 162 of the Act);
  • register of secretaries (section 275 of the Act). However, unless otherwise provided in its articles of association, private limited companies are not required to have a company secretary;
  • register of directors’ (being individuals) residential addresses (section 165 of the Act);
  • register of members (section 114 of the Act);
  • register of persons with significant control (“PSC Register”) (section 790M of the Act);
  • register of charges in respect of charges created prior to 6 April 2013 (section 877 of the Act). It is a good housekeeping practice to keep such information for charges created on or after this date although there is no legal requirement to do so;
  • register of debenture holders (section 743 of the Act);
  • copies of all directors’ service contracts or memoranda of terms (section 228 of the Act);
  • records of resolutions and shareholders’ meetings (section 355 of the Act) and those of a class of members (section 359 of the Act);
  • minutes of directors’ meetings (section 248 of the Act).

A company’s “records” is broadly defined in the Act as any “register, index, accounting records, agreement, memorandum, minutes or other document required by the Companies Acts to be kept by a company” (section 1134 of the Act). It is good housekeeping and (often requested in the course of a due diligence investigation) to also keep and maintain the following registers/information:

  • register of applications and allotments;
  • register of transfers;
  • register of share certificates issued;
  • articles of association and any shareholders’ agreements applicable to the company. In the case of shareholders’ agreements, be mindful of the confidentiality restrictions (if any) when considering any request for its production.

How to keep

The statutory books and records of a company were traditionally kept in hard copy form usually in a folder. However, many companies now choose to keep and maintain all or parts of such information electronically. If kept and maintained electronically, the information needs to be in a format capable of production in hard copy.

Alternatively, a private limited company can opt (either by its subscriber(s) upon the company’s incorporation or, following incorporation, by completing and filing the relevant Companies House forms – forms EH01 to EH05) to keep certain registers within its statutory books and records on public record at Companies House. Such registers include:

  • register of members;
  • register of directors;
  • register of directors’ residential addresses;
  • register of secretaries;
  • PSC Register.

Keeping any of the above statutory registers at Companies House does not relinquish the company (nor its directors) from the obligation to keep such information updated. When deciding whether to keep and maintain the above registers at Companies House, it is worth bearing in mind that such information will become open to the public, including, but not limited to residential addresses and dates of birth.

It is also worth bearing in mind that simply keeping a company’s filing position up to date at Companies House does not obviate the need (nor indeed the legal requirement) to ensure that the company’s statutory books and records are properly and accurately maintained. It should not be forgotten that the majority of information filed by a company at Companies House is meant to reflect of the position as set out in the company’s statutory books and records.

Where to keep

Generally, unless the registers referred to in the preceding section of this article are kept at Companies House, statutory books and records of a company must be kept available for inspection at either the company’s registered office or a single alternative inspection location.

Get your house in order

It is advisable not to leave it until the last moment of a transaction (such as a share sale) before reviewing your statutory books and records and, if necessary, undertaking any work required to update them. A buyer is likely to want to see such information during the course of its due diligence investigation. Even if it doesn’t request sight of it during the initial stages of a transaction, it will require it to be produced on completion of the sale.

Further, a properly drafted sale agreement will include warranties and possibly an indemnity that the statutory books and records have been properly maintained and reflect the position of the company; particularly the company’s register of members.

The register of members is the prima facie evidence of a company’s members. Significant issues may arise if the information contained in a company’s statutory books and records (for instance, its register of members) is missing, inaccurate or reflects different information to the company’s filing history at Companies House.

Correcting certain inaccuracies may require the approval of the court. In the context of a specific transaction, such as a share sale, this may cause added stress to the company’s directors, impact transaction timetabling, and result in cost to the company in question, not to mention possible embarrassment for the directors and target company, especially if such matters are left unattended until the momentum of the transaction gains pace.

Even if there is no specific transaction on the horizon, take a moment to check your company’s statutory books and records. If you can locate them, see:

  • whether they contain the relevant registers and information (summarised above);
  • whether the information within them is accurate and up to date;
  • whether you need to make any further enquiries of the company’s officers and/or members;
  • does the information filed at Companies House in respect of the company in question reflect the information in its statutory books and records.

If you would like to discuss any of the issues summarised in this article or know more about how we may be able to help you, please contact our experienced banking and finance advisors.