If you’ve just completed a stellar transaction your attention is probably turning to the rewards – new business, growth and returns. But first make sure you have properly dealt with those dry if all-important post-completion matters, including updating your share registers.
Share registers are truly vital for title – and are used and scrutinised at key points in your business’ life cycle.
Basic mistakes may have an easy fix – but serious mistakes can be expensive to correct and require court action, as was seen in a case earlier this year (Boston Trust Company Ltd v Szerelmey Ltd  EWHC 1352 (Ch)).
Here we set out examples of some common mistakes and how to correct them. We have focused on the registers of private limited companies but advise on all entity types.
Why should you care about your share register?
Share registers provide definitive proof of ownership. However you acquired your shares, until your name is in the register you do not have full title to them.
At key strategic points – if you’re looking for lenders, for co-invest cash or to make a sale, for example – you will need to provide a copy of the share register to interested third parties as part of their due diligence.
If there is any doubt about a person’s share registration, another party might be able to challenge that person’s rights in relation to the company and the validity of the company’s actions to date (for example, where that person has received company information, accepted distributions or voted on shareholder matters).
More generally, each company has an obligation to keep its share registers updated (as soon as practicable and in any event within two months of any allotment / transfer being lodged). If it doesn’t comply with this obligation, an offence is committed by the company and every defaulting company officer (each of whom could be fined) and any affected party may be entitled to bring a claim.
What information should share registers contain?
There are fairly basic requirements on content. Share registers must contain the:
- Shareholder’s name and address.
- Date on which that person was registered as a shareholder.
- Date on which that person ceased to be a shareholder.
- There are more detailed rules where the company has share capital (including stating the number and class of shares held), and if it has joint shareholders, treasury shares or share warrants.
Note that shareholders have a right to inspect the share register without charge upon request to the company.
If you find an error in the share register, you should obtain legal advice to confirm the best course of action to take – this will depend on whether the error appears basic or more serious. The law does not prescribe for all instances, so a pragmatic approach may be required.
How to fix a basic mistake
Basic mistakes may include a simple typo to a party’s name or address. It is common practice to adopt a relatively easy fix to such errors. Typically, the affected shareholder will deliver a request to the company to rectify the mistake, setting out details of the error and any supporting information. The board of directors will review the mistake and, if it approves rectification, will update the register (and any Companies House filings as required).
The process may also be subject to other formalities required by the company’s constitutional documents and any third-party consents needed (for example, lender consent).
Proceed carefully – if correcting a seemingly basic mistake could affect another shareholder’s rights then you should instead assume it is a serious mistake.
How to fix a serious mistake
Serious mistakes can include a delay in updating the registers, incorrectly noting someone as being a shareholder or giving an inaccurate description of a shareholder. The latter can arise from a misunderstanding of more technical legal issues, particularly when dealing with different shareholder types (companies, partnerships and so on).
For example, there is the issue of whether someone is a “legal person” (i.e. capable of holding full title under English law). Only someone holding full title can be named in a straightforward manner as the shareholder in the register. This is the case where the shareholder is itself a company or limited liability partnership, for example.
It is more complicated if someone is not a “legal person” – they cannot hold full title to the shares (even if they can hold beneficial title) and cannot be named as a shareholder in their own name. For example, in the case of a:
Partnership, the shares could be registered in the joint names of the individual partners (or some of them on trust for all the partners).
Limited partnership, the shares could be registered in the name of the limited partnership’s general partner or a nominee company on the limited partners’ behalf.
Trust, the shares could be registered in the name of the trustee(s) or nominee(s). The latter was a problem in the Boston Trust case, where a trust was incorrectly described (in its own name) as holding shares in a company – something it is incapable of doing.
To fix any serious mistake, the affected person (including the company or a shareholder) may apply to the court to rectify the share register – typically using a Part 8 claim form. The court may refuse the application or order rectification of the register as well as payment by the company of any damages sustained by any affected party. The court may also more widely decide any question relating to the title of a person who is a party to the application to have their name entered in or omitted from the register. Much easier to get it right the first time!
Disclaimer – This note reflects our opinion and views as of 8 December 2020 and is a general summary of the legal position in England and Wales. It does not constitute legal advice. Visit the Forsters website here to find out more