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With effect from today’s date, there is a fundamental change for all UK companies in terms of the legal requirement to maintain their company books (or to give them their more official title “statutory registers”) which will allow all companies the option to keep their books on a brand new electronic central register maintained at Companies House.   

The aim of the new legislation is to allow greater transparency and ease the administrative burden particularly on smaller private companies. However, there is some doubt as to the real benefit in signing up to the new central public register and for many companies doing so could lead to greater issues. The new register comes into existence with effect from 30th June 2016 and all UK companies, whether you are a one man band or a large corporate, will need to make a decision whether to sign up or not.

What are statutory registers?

Every UK company is required to keep and maintain a set of statutory registers comprising, amongst other things, a register of members, a register of directors, a register of directors’ residential addresses and a register of secretaries. These must be kept either at the registered office of the company or at a single alternative inspection location.

Why are they important?

The importance of these registers cannot be understated, particularly the register of members which is the ultimate official record of who your shareholders are. The significance of the title deeds to your house is generally understood in proving legal ownership, however there is a common misunderstanding of the importance of the statutory registers for companies which are in effect the title deeds which prove the true legal ownership behind your company. It would not be uncommon, particularly with personal service companies or other small to medium businesses, when advising a director who is asked the whereabouts of the statutory registers, that you are met with an expression as blank as the statutory registers when they are finally located gathering dust either in the office or at your lawyer or accountant’s offices.    

There is a common misunderstanding that the information filed at Companies House by companies each year on the Annual Return is what really matters but that is really just a reporting requirement.    To get to the bottom of the true legal position of who the directors and shareholders are, the information must be contained within the hard copy statutory registers actually kept by the company.    

To become a legal registered shareholder of a company in the UK, you have to be entered in the company’s register of members with details of the shareholder and how many shares they own.    Until that registration process has been completed, although someone may have an entitlement to the beneficial interest in those shares, the legal title in the shares which have been issued or transferred has not yet been completed. If you are not a properly registered member, then the rights attaching to those shares are limited and until then, the default position is that you are not lawfully entitled to receive a dividend, to vote on any resolution put to the shareholders of the company or to share in the sale proceeds if the shares in that company are sold to a third party.

It is also important to bear in mind that failing to maintain your company registers constitutes a criminal offence.  

When things go wrong

In a recent case, a company entered into a transaction transferring a property belonging to the company to one of its directors. This transaction fell under the substantial property transaction rules which prevent a company from disposing of a substantial asset to one of its directors (or their connected persons) without obtaining approval from the company’s shareholders. In this situation, a meeting of the shareholders had been properly convened and a majority of the shareholders present passed the necessary resolution approving the transaction, however the transaction was subsequently challenged by one of the other shareholders on the basis the resolution was not valid.      The shareholders who had approved the resolution had acquired beneficial ownership in their shares but the transfer to one of the shareholders, although having been reported to Companies House on an Annual Return, had never actually been registered in the register of members so he was not a registered member entitled to vote at that meeting. As a result, the meeting did not have a quorum of registered members present and the shareholder who challenged the transaction was successful in proving that the resolution was invalid and the whole property transaction was therefore set aside.

What is the new register?

The Small Business, Enterprise and Employment Act 2015 has brought in new rules which will allow all companies to opt in to the new central register, thereby dispensing with the requirement to keep and maintain your own statutory registers. In order to achieve this, all members have to assent. The change takes effect when the notice is registered with Companies House, and once opted in the company no longer has to maintain its own statutory registers, though there is still a requirement to keep the historic statutory registers.     

One of the main drivers behind the introduction of the new register and other recent developments including the new Persons with Significant Control Register (with effect from April 2016) and the abolition of corporate directors (from October 2016) is for there to be complete transparency of company and LLP ownership and control. In practice, the new central register is likely to mean an increased burden in reporting to Companies House for companies which opt in. There is still currently no requirement for transfers of shares to be reported to Companies House which only have to be notified on the next Annual Return (which itself is being abolished and replaced with a new confirmation statement allowing more flexibility around the timing of annual reporting requirements) but if you opt in to the central register you will have to notify Companies House as soon as practicable after each transfer of shares so they can keep the central register of members up to date.   

If companies keep and maintain their own statutory registers, they can at least keep control of recording any changes in shareholding promptly without the risk of delay that may come with reporting to the Registrar of Companies who then record the change on the public registers.     Although for some it may lead to less of an administrative burden in not having to maintain their old hard copy registers, they will not be able to destroy the historic records which still need to be preserved. Companies will always have the ability to opt back out of the central register regime so there will be those companies on the new electronic register, those on the traditional old statutory register regime and possibly those who have opted in and then opted out again.  It may be that in the future it could become mandatory to sign up to the central register but until then there is scope for confusion rather than transparency. Companies limited by guarantee may also be unlikely to opt in to the new public register as they currently have no obligation to send details of their members at all to Companies House (save where they may be obliged to under the new PSC register requirements).

Opt in or opt out?

We would urge extreme caution to companies considering taking up this option when it arrives without fully exploring the implications. If you think you are happy with the dusty green folder sitting in your office or kept by your solicitors or accountants, then you do not need to do anything. If you are interested in taking advantage of the new central register, a number of steps will need to be taken to opt in, including seeking shareholder approval, exercising the option and notifying Companies House. Stronachs LLP would be pleased to assist any companies whether they wish to opt in or otherwise, by providing more detailed advice on the legislation, reviewing and advising on your existing statutory registers, or indeed by providing ongoing company registrar services for your company.   

This note is provided for topical interest and information purposes only and is not intended to be and should not be regarded as legal advice either generally or in relation to any specific circumstances.  Neither Stronachs LLP nor any of its members, employees, consultants or other personnel accepts any liability for loss arising from reliance on the contents of this note.

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