What Are Statutory Books and Why Keep Them?

Posted by on May 1st, 2020

What are statutory books?

All private companies are required by the Companies Act 2006 (CA 2006) to keep and maintain company records, which are defined by section 1134 of the CA 2006 as any register, index, accounting record, agreement, memorandum, minutes or other document required by the companies acts  (being the CA 2006 and any applicable sections of the Companies Act 1985 which remain in force) to be kept by a company. Company records will start from the date of a company’s incorporation and should be maintained until its cessation, meaning that even dormant companies are required to maintain certain company records.

People often use the term “statutory books”, which is not defined under the CA 2006, to refer to a particular sub-set of company records that were historically held and maintained together in large book. Confusingly, people do use the term “statutory books” interchangeably to refer to the statutory registers (which can be held at Companies House, internally or both, see further below) as well as certain non-statutory registers.

Statutory registers are the register of members, register of directors, register of secretaries and register of persons with significant control. Companies are also required by the CA 2006 to keep minutes of all directors’ board meetings and shareholder resolutions (historically also kept in hardcopy in files like books).

Non-statutory registers, which are often included when referring to statutory books are the register of shares (recording all share issues and transfers) and a register of charges relating to company property.

Templates of each of the documents which make up the statutory books are available to purchase from our shop, here.

This article looks at the purpose and content of each document and the relevant provisions which apply to those documents under the CA 2006 (where applicable). It also looks at why it is important to keep and maintain these records.

The Register of Members

All companies are required by section 113 of the CA 2006 to keep a register detailing the name and address of each shareholder and the number, class and amount paid (or agreed to be considered as paid) in respect of the shares they hold. The register should also record the date of registration and the date they cease to be a member. Former member details must be held on the register of members for at least 10 years, after which they can be removed.

If a company issues new shares (either to a new member or existing member) or if existing shares are transferred (either to a new member or existing member) these changes need to be entered onto the register of members within two months in order to complete the transfer of legal title in the shares to the new holder. The register of shares (see further below) may also need to be updated.

Note however, when issuing new shares, you must also notify Companies House of the issue within one month.

Failure to maintain a register of members can lead to a fine of up to £1,000 for each person guilty of an offence as well as the company itself and, should such contravention continue, a further fine that will accrue daily until corrected.

Specific requirements for a company’s register apply when there are more than 50 members, in which case the company must maintain  either a separate index of names so that individual registers may be easily found, or alternatively the register of members must be structured in such a way so as to create an index of members.

If a company is registered with only one member or falls to only one member, the register of members must include a statement to this effect. If the company increases its members then this statement must be updated and confirm the date on which this occurred.

Joint holders of a share must be added as one entry, including both names but one address.

In respect of any share warrants issued (where the holder of the warrant is granted a right to subscribe for the relevant number of shares), the register should reflect the issue of the warrant and number of shares but should not include the name of the warrant holder.

If there are any errors with a company’s register, then depending on the severity of the error, it can often be corrected without approval (for example a typographical error), this information should be also be corrected at Companies House by submitting the relevant form applying for rectification. However, more serious errors (for example the name of a member is omitted from the register without cause) then an application must be made to the court to amend the register pursuant to section 125 of CA 2006.

The Register of Directors and Secretaries

Pursuant of Sections 162-165 (inclusive) of the CA 2006, a company is required to maintain a register of the names, service address, business occupation, nationality, and date of birth for each of the company’s directors. Similar criteria are applicable to secretaries by virtue of sections 275-279 (inclusive) of the CA 2006. The company should also keep a register of directors’ residential addresses, where they are different to the service address recorded for that director. Whilst some companies choose to hold this as a separate register, it can be incorporated in the register of directors and secretaries.

For the purpose of the public register maintained by Companies House, directors can opt to use the company’s registered address as their service address to be shown on the register. However, they must still provide their residential address (although this will not form part of the publicly available information if the individual has opted to use the company’s address for the purpose of the public register).

Where a director is a corporate entity then the name of the company and its registered address should be recorded. If the company is registered outside of the UK, then the register should include the legal form of company and details of the register on which it is registered (for EEA companies also include the registration number).

Companies are required to notify Companies House within 14 days if there are any changes to its directors (or their person details) and/or the company secretaries. These changes should be reflected on the internal register.

Failure to maintain a register of directors and secretaries and/or a register of residential addresses (there will be no breach if this not a separate register but incorporated into the main register) are both offences and may incur fines of up to £5,000 for each director in default as well as the company itself and, should such contravention continue, a further fine that will accrue daily until corrected.

Register of People with Significant Control over the Company (PSC Register)

The requirement to produce and maintain a PSC register is relatively new and was introduced in 2016. Companies within scope (those which are subject to Part 21A of the CA 2006) are required to take reasonable steps to identify persons who hold a significant control over the company and keep a register of those persons. This article does not cover the PSC regime in any detail but provides a short summary of who will be a PSC.

Most UK companies will be required to maintain a PSC register however, overseas companies, charities, friendly societies and open-ended investment companies are exempt from the requirement to maintain a PSC register.

Individual PSCs are identified by reference to five specified conditions. If an individual meets one or more of these conditions then they should be listed on the PSC register. The five conditions are as follows:

  • Condition one is met if an individual holds more than 25% of the shares in a company (calculated by reference to the percentage of aggregate nominal value is held).
  • Condition two will be met if an individual holds more than 25% of the voting rights in a company (calculated on the basis of one vote per share, absent anything to the contrary in the company’s articles).
  • Condition three will be met if an individual who holds authority to appoint or remove a majority of directors of the company.
  • Condition four will be met by someone who has a right to, or actually exercises significant influence or control over the company.
  • Condition five is more complex as it relates to trusts or firms with no legal personality. The fifth condition will be met, 1) where the trustees or members of the trust or firm would otherwise meet conditions one to four in relation to a company in their capacity as trustee or member (or would if they were individuals), and 2) where those trustees or members have the right or actually exercise, significant influence or control over the activities of that trust or firm.

A relevant legal entity (RLE) is any entity which is a legal entity for the purposes of the PSC regime and 1) would meet one of the five conditions (if it were an individual) and 2) is be subject to its own disclosure requirements under the PSC regime. What this means is if an entity is already required to hold its own PSC register and holds its interest indirectly then it will not be need to be entered into the PSC register for any entity below it (this is easiest identified by looking at company structure charts).

Once a PSC has been identified, the register must include a statement detailing the nature and extent of that person’s control or interest in the company. Particulars of a PSC must be entered onto the PSC register within 14 days of confirming those particulars. A PSC can never be blank. Where particulars for a PSC have not been confirmed then the register must include a statement detailing the progress towards completing the entry on the PSC register.

Failure to have and maintain a PSC register will be an offence committed by the directors as well as the company itself and may incur a fine of up to £1,000 and, should a contravention continue, a further fine will accrue daily until corrected.

Minutes of Directors’ and Shareholders’ Meetings and Resolutions

Companies are required by section 248 of the CA 2006 to keep minutes for every board meeting held by the company and separately by section 357 of the CA 2006 to keep minutes for general meetings. Copies of all minutes and resolutions must be kept for at least 10 years.

The minutes should (if properly prepared) provide a record of the resolutions passed and decisions made at the meetings. Where a resolution is passed otherwise than at a meeting, (for example by written resolution), a copy of all such resolutions should be retained along with the minutes.

Failure to comply with any of the requirement to keep minutes or copies of resolutions passed otherwise than at a board or general meeting, or a failure to keep them for the relevant period will result in an offence having been committed by every director in default and the company itself. This offence carries a fine of £1,000 and, should such contravention continue, a further fine that will accrue daily until corrected.

The Register of Allotments and Transfers

Whilst it is not a statutory register required under the CA 2006, it is important for companies to keep a register of shares to record each time there is an issue or transfer of shares. This is not a replacement for the register of members which is a statutory register required by the CA 2006.

The register of shares should provide a full history of share allotments and transfers and each entry should detail the date of each application, the name and address of the shareholder, the number and class of shares and total number of shares. It should also record amounts paid and any further amounts payable or returnable in respect of each entry.

The register of shares should be updated in line with the register of members and changes should be consistent.

The Register of Mortgages and Charges

There is no statutory requirement to maintain a register of charges and references to a statutory register of charges can sometimes be confusing the public register charges held at Companies House. (see further below). However, most companies choose to keep an internal register of mortgages and charges as a way of tracking the charges granted over the company’s property.

An internal register of mortgages and charges will usually record the chargeholder, the date the charge was issued, the type of charge and charged property. It will should also include details of any covenants or conditions set out in the charge document. Copies of charges should be retained by the company at least until the charge is satisfied, if not longer.

Since the implementation of section 859A of the CA 2006 in April 2013, companies have been required to register almost all types of charges at Companies House. For the purposes of the CA 2006, a charge includes a mortgage, lien and any standard security interest, assignation in security interest or any other right in security but it does not include a pledge (which in English law is the delivery of possession of an asset as security, which can be actual or constructive).

Failure to register a registrable charge can result in that charge being void but also results in the charge amount becoming immediately repayable. As a result, most prudent chargors will register a charge at Companies House to avoid the risk of such penalties.

An internal register of charges can be important when it comes to tracking what charges have been granted over what property, particularly when a charge is released or satisfied. There is no penalty for failing to remove a released or satisfied charge from the public register, however not updating the public register will cause issues if a company is sold or liquidated because the charge will show up in searches of the public register carried out as part of these transactions. Any charges that are not removed from the register after being satisfied will need to be dealt with before any sale or liquidation can be completed. The risk in this situation is that records may not be available (for example if the charge is historical) to prove that it was released or satisfied (as applicable) and this will cause delays whilst the oversight is corrected and the register updated.

Maintaining statutory books

Developments in technology and separate requirements to register certain information at Companies House have largely overtaken the traditional hardcopy “statutory books” (however some companies still maintain a hardcopy book of information). Now registers are mostly held electronically and a lot of companies now opt to maintain them centrally at Companies House to negate the need to keep separate records.

Following amendments to the CA 2006, which took effect in June 2016, companies can now opt to maintain their statutory registers centrally at Companies House thus dispensing with the need to keep separate internal records during the period of any election. There are certain formalities which need to be complied with in order to exercise this option and to avoid the need to keep duplicate internal registers, but the relevant registers it will apply to include the:

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

Unless a company makes the election at Companies House to maintain these registers centrally, internal registers will still be required in addition to the usual company filing requirements for Companies House. Furthermore, companies must still hold copies of minutes for directors’ and general meetings as well as copies of resolutions. They should also consider the need to maintain a register of shares and register of charges (as discussed above).

The importance of maintaining statutory books

Aside from the fact that it is a legal requirement under the CA 2006 to maintain the statutory registers, it is also a legal requirement for information to be available for inspection on request and this is one way in which any errors or failures with regards to maintaining up to date statutory registers might come to light. Poor records may also become an issue when proposing to sell a company or some of its shares, or when looking to raise funds through third party investment in a company.

As mentioned above, failure to maintain particular registers is an offence under the CA 2006 and an offence will be deemed to have been committed by each director in default as well as the company itself. Offences will be committed in respect of each failure (i.e. failure to have a register of members and register of directors) and further daily fines for continued contraventions will be imposed until rectification.

There is also a right for certain people to inspect the records of a company. In order to inspect the statutory books, the person must make a request in writing to that company providing the requisite notice (at least 2 working days’ notice during the notice of a general meeting should a member wish to see certain records, or 10 working days otherwise). A company must then respond to any request within five working days.

Failure to comply with an inspection request is an offence under the CA 2006 and will be committed by any director in default as well as the company for failing to make company records available for inspection. A private company’s statutory registers must be available for inspection without charge to any member of that company.  Whereas members of the public can make a request for inspection but there are specific requirements that need to be met and there is a prescribed fee that will be payable.

If an inspection request meets the relevant requirements (known as the “proper purpose test”), the company must comply within five working days. If a company feels the request does not meet the “proper purpose test” it must notify the requestor and apply to the court within five working days of recceing a request to inspection. The court will thereafter decide whether or not the request was made for an “improper purpose” (for example to obtain personal information in order to commit identity fraud, abuse a person’s rights under the Data Protection Act 2018, or use the data to potentially communicate with company members in a threatening or harassing manner), in which case the court can direct the company not to comply with the request and, in some instances, order that the requestor pay any resulting costs. However, if the court decides that the request was indeed made for a “proper purpose”, the company will be ordered to comply with the request immediately.

Aside from the various offences which could be committed in respect of the statutory registers, company records are also important for other reasons. They provide details of the company structure and record important transactions and decisions. They may also be required for audits or be requested by regulatory bodies to comply with specific regulatory requirements (for example HMRC may require certain documents for tax purposes).

Mistakes or inconsistencies in records are commonplace, however whilst companies may have little appetite to correct or check them, they will become also be important during a sale or when seeking outside investment. Any prudent buyer or investor will require some level of due diligence that will quickly identify any errors or omissions. Whilst in a lot of cases these errors can be corrected, certain errors could lead to material delays and/or lead to embarrassing conversations between parties whilst mistakes or omissions are explained and parties get comfortable with how they will be addressed. At the more serious end of the scale, inconsistencies or missing records can foster distrust by buyers or investors, particularly where it’s difficult to trace key information such as share tile or persons with significant control. This can lead to financial losses (where purchase prices are adjusted or broad indemnities are requested in transaction documents), or in the most serious instances (for example where no record of title exists and it cannot easily be reconstructed), it can jeopardise the transaction entirely and there may be severe delays or potential buyers or investors may walk away entirely.

Whilst these more serious consequences are far less common, it highlights some of the risks that are not always considered. As such it is important to update company records as changes occur to avoid issues in the future and to avoid the risk of offences being committed by the company and its directors in contravention of the CA 2006.

You can purchase templates of each of the documents discussed in this article as part of a package of “statutory books” along with accompanying guidance for completing them, from our shop, here.

 

About Simon Brooks

Simon is a trainee solicitor focusing mainly on business law related matters. He joined The Jonathan Lea Network in 2018 as a paralegal and commenced his training contract with the firm in 2019.

The Jonathan Lea Network is an SRA regulated firm that employs solicitors, trainees and paralegals who work from a modern office in Haywards Heath. This close-knit retain team is enhanced by a trusted network of specialist self-employed solicitors who, where relevant, combine seamlessly with the central team.

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