The Importance of Keeping and Maintaining Statutory Books
Statutory books (sometimes known as company books or company registers) are one of the most important elements of corporate governance yet so many businesses have either never heard of them or have failed to properly maintain them. Not only are they required to be maintained under the Companies Act 2006 (the Act), they show ultimate proof of ownership of the shares in a company. In this article, we will discuss the importance of keeping and maintaining statutory books including what to do if your company does not have any.
Under the Act, every company in England and Wales is required to maintain statutory books. This obligation includes keeping registers of:
- Directors and their residential addresses
- Charges and Debenture Holders
- Persons of Significant Control (PSC) or Relevant Legal Entities (RLE)
Failing to maintain accurate and complete registers is an offence under the Act and can result in fines. The Act also requires a company to either keep the statutory books at its registered office or give notice to Companies House as to where they are being kept.
The statutory books are required to be made available for inspection by shareholders (free of charge) and members of the public (where a reasonable fee may be charged). If a company receives notice of a request for inspection of the statutory books, it has only 5 working days to either comply or apply to court.
Share Capital and Ownership Transparency
Statutory books provide a record of a company’s current and historic share capital. They contain full details of the shareholders, the number of shares held, any transfers of shares or allotments and details of shareholders with control over the company (PSC’s or RLE’s). This information is critical for determining ownership and control within the company and shows definitive ownership of the shares in the company. Transparency in share capital is essential for investors, creditors, and other stakeholders to assess the ownership of shares and shows effective record keeping. Where a company has a long history or multiple share classes, it can sometimes be difficult to keep track and maintain the registers and mistakes can easily creep in.
Facilitating Due Diligence
When a company undergoes a merger, acquisition, investment or such like, the statutory books play a crucial role in the due diligence process. Potential investors or buyers will scrutinize the registers to assess the company’s shareholding structure, and the overall integrity of the business. Issues with the statutory books can lead to indemnities being requested by a buyer in respect of any liability for future investigations or potential shareholding discrepancies. By maintaining accurate and up-to-date registers, you can expedite the due diligence process and increase the likelihood of a smooth transaction.
Protecting Directors and Officers
Failure to maintain accurate statutory books can expose directors and officers to liability for breach of their duties under the Act. Upon discovery of non-compliance, directors and officers may face investigations, and if found guilty of non-compliance, they could be subjected to financial penalties or disqualification from serving as a director in the future.
Reconstituting Statutory Books
In cases where the statutory books have genuinely been lost, they can be reconstituted. This should be done as soon as it becomes clear that the registers are lost and should be done by a professional who is aware of what information the registers must contain, alongside the shareholders of the company who are able to give an accurate record of the history of the company and its share capital.
In summary, statutory books are one of the most important elements of corporate governance and are often overlooked, with many directors being unaware of their duty to maintain them. At The Wilkes Partnership, our company secretarial department can help your company maintain accurate and up-to-date statutory books and reconstitute these if necessary. The Wilkes Partnership advise on all aspects of corporate governance.