Devant Inner Circle Legal Update
Welcome to the March newsletter! The first signs of spring are here and this month we’re looking at the important topic of Company Secretarial Duties. As always, do get in touch if you have any questions or comments about the content. Feel free to share this article within your company and if you have any suggestions for next month’s legal update let me know. Thanks again for being part of the Devant Inner Circle.
CEO Devant Limited
Why keeping on top of Company Secretarial Duties is important
Running a company is stressful, and there are always more things to do than there are hours in the day to do them. So it’s not surprising that many CEOs and company directors choose to focus on the tasks that ‘shout loudest’, and delegate the corporate admin to their accountant, book keeper or PA.
While understandable, this can result in problems being created further down the line.
This legal update looks at:
- what we mean by ‘company secretarial duties’
- the potential impact of not keeping on top of them
- what you need to do, to keep everything tidy
- how Devant can help
What are ‘company secretarial duties’?
At their most basic level, these include the filing of documents with Companies House (including your annual accounts and your Confirmation Statement, previously known as your Annual Return, or AR01) and maintenance of the company registers at the company’s registered office or other notified address. These registers include:
- Register of directors and their residential addresses
- Register of secretaries (if appointed)
- Register of members (shareholders)
- Register of director and member meetings and resolutions
- Register of charges
- Register of persons with significant control (PSC register)
These days, many companies are incorporated online, and may not have their registers created at the time of incorporation. If nobody flags up this requirement, it’s entirely possible that you could establish and run your business for many years without having any of these registers in place.
Once you have a set of company registers, the next task is keeping them up to date. This means that when a new director is appointed, or one is removed, or changes address, the register of directors should be updated. If you issue new shares, or transfer some of your shares to someone else, the register of members should be updated. And if someone has a significant shareholding, or otherwise has significant control over the company, they should be recorded on your PSC register.
Much of the information in these registers is also required to be recorded at Companies House. Forms are available for many of them, but you may need advice on exactly what needs to be reported, and how.
Many accountants use standard software to make the process of filing returns and updating the registers easier. Unfortunately, though, these platforms don’t ensure that the transactions themselves are executed properly, or alert your accountant when you transfer some shares. This is why in just about every company sale that the Devant team has supported, there have been discrepancies between what’s in the Statutory Books and what’s on Companies House – and even more discrepancies with what actually happened in real life!
What happens if we don’t keep on top of our Company Secretarial duties?
There are two types of consequence for company secretarial shortfalls –legal and regulatory, and commercial.
On the legal and regulatory front, you are legally obliged, as a director of a company, to ensure that the registers are properly kept and that submissions are made to Companies House on time. Companies House has the authority to issue fines, and even, potentially, to strike off companies that don’t keep their information up to date. Late filing can result in hefty fines depending on how long you delay it. For delays up to 1 month, your company can be fined £150, going up to £1,500 after 6 months.
Failure to file confirmation statements, annual returns or accounts is also a criminal offence for directors, which can lead to fines in the criminal courts. This is separate and in addition to the fines on the company. Fines and criminal prosecutions are rare in practice, though, and may not provide sufficient incentive to persuade you to get to grips with your statutory books!
The commercial consequences can be much more significant.
If at some point you wish to seek investment or to sell the company, the investor’s (or acquirer’s) solicitor will ask to investigate your company books as part of their due diligence process. When you pull them off your shelf and dust them down, you may realise you haven’t been keeping the registers of the company up to date and they do not match what is shown on Companies House.
You may, at some point in the past, have given shares to incentivise a key member of staff, or an external advisor – this is especially common in the early days of a business, when cash is scarce and the need for quality advice is high. This share allocation may have been rather informal, and not documented properly. If the advisor or staff member is no longer around, you may be tempted to erase them from the company’s history. But if they have a share certificate or copies of correspondence or other documents around their share allocation, this is a highly risky (not to mention morally suspect!) approach.
Equally, you may have had a departing director or advisor transfer their shares back to you. If the transfer was not documented properly, it could be difficult to prove that you actually own your shares. And while, if you remain on good terms with your ex-director or ex-advisor, they may agree to retrospectively tidy up the paperwork, the Devant team has seen situations where the previous shareholder can no longer be contacted – or, in one case, had died! This is the sort of pickle you don’t want to have to be dealing with when preparing for an investment round or company sale.
If your share transfer history or statutory books are less than tidy, you may find that an investor or acquirer will be put off the transaction altogether. Or, at the very least, they are likely to require you to indemnify them against the possibility that a long-vanished shareholder might pop up and make a claim to some of the shares in the future, or that Companies House will issue fines for shortcomings in your submissions.
Some of these things can be put right retrospectively (and we do a lot of this when preparing companies for sale). But in all cases, it’s cheaper, easier and less stressful to make sure things are properly documented at the time, rather than doing it retrospectively under the critical gaze of a buyer’s or investor’s solicitors.
What should we do about our Company Secretarial duties?
If you consider the range of responsibilities you have as a director, it is not surprising that you may miss some of the secretarial duties that are also necessary during the running of a busy business.
While you no longer have to have a Company Secretary by law, many companies that were incorporated pre-2006 will have Articles of Association that require them to do so. If you don’t want to have a Company Secretary, check your Articles – if they require one, you will need to update them before dispensing with a formal Company Secretary, which requires properly documented approval from all of your shareholders.
Whether you have a formally appointed Company Secretary or not, someone has to be responsible for ensuring that your statutory books are well maintained and reflect what is shown on Companies House. You also need to ensure that annual accounts (which may have to be audited, depending on your turnover) and a confirmation statement are filed every year before the deadline specified on your reminder sent by Companies House, to avoid the potential consequences set out above.
As a matter of good practice, when a registered charge on your company, such as a loan, has been repaid, it is important to have this removed immediately from the register at Companies House. This will help protect your business’ credit profile and ensure transparency for potential investors and other lenders. Similarly, if someone is placing a charge over the the assets of the company, it must be registered within a very short space of time (21 days) in order to be binding. This is worth bearing in mind if you have loaned cash to your business (or another company), and require a charge over the assets as security. If the charge is not registered in time, and the company goes bust, you may not be able to exercise your security and may lose your money.
As your business grows, and you begin to have formal board and shareholder meetings, you will need to ensure that these are properly and accurately recorded in the minute book. A main purpose of minuting these meetings is to record the passing of ‘resolutions’, which are decisions that must be approved by the board or the shareholders in order to be legally binding. Your Articles of Association and Shareholder Agreement or Investment Agreement (if you have one) will generally specify certain decisions that require different levels of board/shareholder consent. If you make these decisions without passing appropriate resolutions that record the consent given, there’s a risk that the validity of the decision (and any transaction implementing it) will be questioned in the future.
While it’s often thought that minute taking is just taking notes at a meeting, when it comes to board meetings and shareholder meetings, you shouldn’t underestimate the importance of good minute taking. Minutes are considered legal documents for auditors (if you have them) and may be referred to as evidence of key decisions throughout a financial year.
Finally, you’ll need to make sure your books and registers include full details of share transfers and allotments of shares. Creating, stamping, and recording stock transfers through formal Stock Transfer Forms, is an essential part of the process – the Stock Transfer Form demonstrates the change of title (or ownership) in shares, and will be essential evidence when it comes to an investment or company sale. The last thing you want during a transaction process is to forget what happened with previous share transfers and not be able to demonstrate clearly who now owns a particular class of shares in your company!
How can Devant help with our Company Secretarial duties?
If you need company secretarial support, or if you simply want to find out more about your secretarial obligations, give the Devant team a call. Our dedicated team are on hand to offer user-friendly secretarial advice and services to help support your business, and as an Inner Circle member, you can get quick advice on specific issues at no extra cost by booking an Inner Circle call.
We also have a full suite of company secretarial services to keep your business ‘clean and tidy’, integrated with our commercial contracting services to ensure any transactions you might undertake are properly documented and executed. Ensuring all of these things (your registers, Companies House submissions, stock transfer forms, contracts, shareholder agreements, Articles of Associations, etc) are properly aligned and kept up to date, is a big ask – and one that the Devant team is happy to step up to. Just ask if you’d like a call to find out more.