Is your Company’s Register of Members accurate? The hidden risks of getting it wrong

Every company must keep a register of its members (essentially, its shareholders). This requirement is imposed by company legislation and is intended to ensure that legal ownership of shares is definitive.

A company’s register must be available for inspection by the Registrar of Companies (at Companies House) and, in some circumstances, the register must also be made available for inspection by the public. This ensures that companies retain a degree of corporate transparency to the outside world.

Legal requirements for maintaining a Register of Members

The information which must be recorded in the register is limited, but the consequences of failing to meet the requirements can be serious. Ultimately, company law will not fully recognise – and give effect to – a shareholder’s rights unless their shareholding is properly recorded on the register, regardless of how complete the purchase of a shareholding might otherwise be.

What are the risks of an inaccurate Register of Members?

In addition, and aside from legal rights, a company and its directors each have standalone legal responsibilities to ensure the register is maintained. Failure to meet those responsibilities carries risk of criminal prosecution, and of sanctions being imposed by way of financial penalties.

Despite these ramifications, the need to maintain a register is not always appreciated and is easily overlooked if legal advice is not taken.

Common mistakes and how to avoid them

Once any shortcomings are identified, usually remedial action can be taken; however, if a shareholder’s rights of inclusion to a register are contested, they may face obstruction in circumstances where they do not exercise control over entries to a company’s register.

To avoid such pitfalls, a shareholder would be well advised to make sure their rights of inclusion to the register are clearly negotiated in advance of any investment being made.

Similarly, directors will want to ensure any proposed company transactions are not derailed by poorly maintained registers. Keeping registers fully up to date (and accessible) can be crucial for the efficient progress of dealings with third parties.

How Clarkslegal can help

We can identify any deficiencies or defects in your company’s registers and advise you on how to take remedial action. We can also ensure a shareholder’s rights of entry to a register are properly protected when completing an investment. Legal matters are often far more straightforward when prepared in advance.

Ensure your Register of Members is accurate and compliant. Contact our corporate team today for specialist advice.