All limited companies must keep registers of members in accordance with the Companies Act 2006 (CA 2006).
In accordance with s113 CA 2006, the register should include names and addresses; the date each member became or ceased to be a shareholder; a statement of all shares held by each member; the number and class of each share; and the amount paid on the shares.
If there is an error made on details of such members, any rectification action would depend on the evaluation of its seriousness. The question should be asked: is a discrepancy within the register of members an administrative error (minor clerical) or a major alteration?
Administrative error
If a minor clerical error has been made, the register of members may be corrected upon receipt of a form of rectification request. Examples of administrative errors are:
- Transposed numbers which are correctly reflected in the board minute but not within the register of members
- Typographical error within the name or address of the member
- Transposed date of transaction, for instance, a share allotment.
The form of rectification would be completed and executed by the member whose entry in the register of members is incorrect. Upon receipt of the executed request, the following would be undertaken by the company secretary:
- A thorough review of the register of allotments, the register of members and the register of transfers to determine the validity of the rectification request
- A review of board and shareholder minutes relating to the member registered
- A review of documentation filed with the Registrar of Companies (forms SH01).
Upon satisfaction that a valid discrepancy has been raised and it is that of an administrative error, the company secretary may amend the statutory registers in accordance with the executed form of rectification received.
Major alteration
When a major alteration is needed, an application to the court will be required to rectify the register of members. The application may be submitted by the affected person, the company, or any member of the company. Examples of major alterations are:
- The name of any person is, without sufficient cause, entered in or omitted from a company's register of members
- Default is made or unnecessary delay takes place in entering on the register the fact of any person having ceased to be a member.
Upon application, the court has the power to determine whether a rectification order should be granted under s125 CA 2006 and also if damages should be paid by the company to the aggrieved party. In practice, the rectification application is successful if the applicant is able to establish a legitimate interest in the shares to which the entry in the register of member relates. Furthermore, if there is a dispute between the company and the shareholders as to the current shareholding, then a resolution should be sought through the courts.
Case Study
You are the company secretary of a company which is due to be sold. Two days before completion of the multi-million pound sale, you have been informed by lawyers that there appears to be a discrepancy in the statutory records (register of members) of the company being sold. The discrepancy is the number of shares in issue for a particular member. What are your considerations to determine the way forward?
The company secretary investigated and the findings were as follows:
- Upon review of the statutory registers, the number of shares registered was overstated by a minimal amount
- The statutory accounts stated the number of shares allotted being the overstated minimal amount mentioned in point 1 above
- The form SH01 filed with the Registrar of Companies stated the number of shares allotted, which was consistent with the executed board minute
- The share certificate issued stated the number of shares consistent with the details on the form SH01, as filed, and executed board minute.
In general practice, it is suggested that administrative errors are restricted to minor errors in shareholder names and addresses and does not include inaccuracies in the number of shares issued. The fact that the discrepancy in the number of shares was not simply a matter of transposition of numbers or an obvious typographical error, it could give a view that this scenario should not be treated as an administrative error.
Other than a court order, there could be several options available that would not involve rectifying the register but would result in the number of shares in issue being reduced:
- A reduction of capital pursuant to s641 CA 2006
- A buyback of shares for no consideration pursuant to s659(1) CA 2006.
Another option which may be considered is that the transaction documentation be amended to reflect the number of shares on the register of members. The company secretary may take the view that after receiving direction from the directors and shareholders of the company that the discrepancy within the register of members was that of an administrative error. The rectification form may include the following:
"We hereby confirm that this rectification form relates to the correction of the number of shares shown issued in the register of members against our name arising from an administrative error.
Neither the securities nor the certificate of title thereto have been transferred, charged, lent or deposited or dealt with in any manner affecting the absolute title thereto and the company correctly named in the rectification from is the company entitled to be on the register in respect of such securities.
We request and authorise you to amend the number of shares in issue to us to correctly reflect the supporting documentation at the time of allotment on [ ] 20[ ] by the reduction and removal of [ ] [ordinary] shares of £[0.10] from the total holding registered in our name and consideration of your doing so undertake to indemnify the company against all claims and demands which may be made against the company in consequence of your complying with this request and of the company permitting at any time hereafter a transfer of the said securities, or any part thereof and against your reasonable legal or other expenses in relation to such claims and demands."
Once the form had been executed by the said member and submitted to the company secretary, the register of members would be rectified in accordance with the form received.
SBEE 2015
Pursuant to Schedule 5 Small Business, Enterprise and Employment Act 2015 (SBEE 2015), which has amended CA 2006, private companies will be able to opt to keep certain information on the public register. This will, inter alia, apply to the statutory register of members and a new Part 2A CA 2006 sets out the rules and procedure for exercising this option. For instance, all members of the company must assent to the election and notice of such election will have to be registered at Companies House so that it may take effect.
Where the Registrar maintains the information that would otherwise be entered in the register of members, the public register will become prima facie evidence of company's shareholding records.
Although the above election is in force, a company will need to deliver information to the Registrar that is required to be entered on the register of members (s128(E) CA 2006).
Amending public record
If Companies House placed a document on public record which was later found to have contained an error that ought to have led to its rejection, the Registrar of Companies has the power to remove the document from the record. However, if Companies House accepts and places on the record a document containing information which is factually incorrect, but has otherwise been completed correctly, the Registrar has no power to remove it without a court order.
Alternatively, the company may deliver a form RP04 to notify Companies House of a second filing of a previously properly delivered document that contained inaccuracies. This form may be used in the case where the shareholdings details may need to be amended, ie. for submission of a second filing of the Form SH01, Return of allotment of shares or AR01, Annual Return.
The maintenance of accurate members' details by the company secretary or delivery of such accurate information to Companies House is essential.
Find out more
TMF Group will be delivering a free webinar on Demystifying the new PSE register, and how to amend your share register. This webinar will be pre-recorded and available to you at your convenience from 16 March 2016.
You can sign up to receive the webinar recording by sending us an email.
This article was originally published on the Governance and Compliance website.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
