Providing Evidence of Shareholders
The consequences of the Companies Act 2006 have been far reaching; in particular those changes brought in on 1st October 2009. One of the significant real world issues raised since that date is that of proving share ownership within a UK limited company.
Under the Companies Act 1985 the memorandum of association included information and evidence relating to the original subscribers (shareholders) of the company. More importantly, those details contained specific tallies of the number of shares issued to each person or company.
The current 2006 Act requires that these allocations of omitted for the restyled memorandum document. Thus in the process of completing a normal company formation application, it is not possible to obtain confirmation and thereby evidence of the number of various allotments which have been made to the company’s shareholders.
Consequences for Shareholders of the 2006 Act
One of the main consequences of the change is the inability of shareholders to prove their percentage holdings within a company when opening a business bank account. Banks typically require evidence of who the major company shareholders are.
Surprisingly, even in situations where there is a single subscriber and that person or company is named on the company incorporation submission documents; because of the absence of the number of shares allocated they can not prove how many shares they actually have.
This issue becomes very real when banks request evidence of specific shareholdings and ownership. During the normal course of running a UK limited company, the first opportunity to dictate share information is when completing the Annual Return one year and twenty eight days following the date of company registration.
Only at this stage is a list of original subscribers and any subsequent transfer to other shareholders recorded. Most active companies would of course prefer to open a business bank account before this date and thus waiting is rarely a viable option.
Ways to Prove Share Ownership
The means by which a company or individual shareholder can prove their share ownership and provide the necessary evidence include the following:
Annual Return – As stated previous, completing the company’s Annual Return provides an opportunity to list each shareholding and respective owner as at the date the document is prepared. This information is then made readily available to the public as well as credit reference agencies which the banks typically use.
Share Certificates – As internal company documents share certificates are generally accepted by UK banks as proof of a shareholding in a company. The information found on a typical certificate depicts the total number of shares in issue, the quality held by the individual person or company and the signatures of the authorised company personnel.
Complete Formations provide both books of dedicated share certificates as well as the popular statutory company registers which provide sixteen of these documents as well as a full set of company records.
Certificates of Good Standing - These documents can be used to stipulate a multitude of information about a specific UK company and the persons or other corporate bodies associated with it. In short, provided Companies House can ascertain the individual shareholders at the time of preparation, the certificate of good standing can list the shareholders and their allocations.
Certification by an Authorised Person – Banks will often accept a written statement by a Solicitor or Accountant certifying that a particular person or entity has a certain shareholding within a company. Ironically, the Accountant or Solicitor would often rely on verbal or written statements given to them by their clients as the basis for preparing such documents for the benefit of the bank.
Whilst the “know your client” requirements set out the banks need gather evidence, verify and obtain proof of shareholdings within a company, the means by which this can be achieved can result in the potential customer engaging in further expenditure in order to satisfy them.
The position was indeed more straightforward prior to the 2006 Companies Act as the primary means of ascertaining and proving shareholdings was removed overnight seemingly without substitute being introduced.
