When preparing a business for sale, one of the most commonly overlooked yet crucial areas is the accuracy of the company’s statutory records, particularly the share register. Even a seemingly minor issue, such as a missing or unclear record of a subscriber share, can raise concerns during due diligence and potentially delay or jeopardise a transaction.
Why share registers matter
The share register serves as the legal proof of ownership in a company. If a share has been issued but is no longer properly accounted for, whether due to administrative oversight, incomplete documentation or a historical error, it creates uncertainty about ownership. This can be particularly problematic in a sale scenario, where buyers need full confidence in the company’s capital structure.
Common issues that arise
Some typical issues that arise relating to share registers include:
- A subscriber share issued at incorporation is missing from the current register.
- A share appears to have been cancelled or transferred, but there is no supporting documentation.
- The number of shares recorded at Companies House does not match the internal register.
These problems often arise in older companies where records may no longer be available or those that have undergone multiple changes in ownership or administration.
Options for rectification
There are several legal and practical methods to rectify issues with missing or unclear share records:
Capital reduction
One effective way to resolve a missing or unaccounted for share is through a capital reduction. This process allows the company to formally cancel the share, bringing the statutory records back into alignment with the actual position. In some cases, a court-approved reduction may be required, depending on the company’s circumstances and the route chosen.
Statutory declaration
A director or officer of the company may provide a statutory declaration confirming the facts surrounding the missing or unclear share. This can be used as supporting evidence to update the register and reassure potential buyers.
Court rectification order
Under section 125 of the Companies Act 2006, an application can be made to the court to rectify the register of members. This is particularly useful where there is a dispute or uncertainty that cannot be resolved through internal documentation alone. However, this is often used as the last resort due to the cost of doing so.
Reconstructive evidence
Where original documents are missing, secondary evidence such as board minutes, shareholder correspondence, or historical filings with Companies House can be used to reconstruct the share history and support amendments to the register.
Best practices before a sale
- Audit your statutory books early in the sale process, or ideally, well in advance to pinpoint any areas that need rectifying.
- Resolve discrepancies proactively to avoid last-minute delays.
- Seek legal advice if there is any uncertainty about historical share movements or missing documentation.
Final thoughts
While a missing share might seem like a minor technicality, it can have significant implications in a share sale. Addressing these issues early, using the appropriate legal tools, helps ensure a smoother transaction and greater confidence for all parties involved.
