It’s all too easy to assume that small, or minority, shareholders are unable to exercise any significant influence within a company at all. In fact, given the limited statutory rights granted to minorities, and the practice of discounting the value of a minority interest, it is easy to see why such a perception exists.
But whether this is the case or not, it would be foolish for directors or majority shareholders to disregard the interests of minorities out of hand. Parts of the Companies Act 2006 grant specific and valuable rights to all shareholders, irrespective of the size of their shareholdings.
A good starting point is to consider exactly how minor the minority shareholder is. Arguably, a minority shareholder is one that is unable to pass an ordinary resolution without the assistance of any other person, and on this basis, a holding as large as 50% could be deemed to be a minority interest.
That said, if shareholder power is viewed from the perspective of what it permits a shareholder to prevent happening rather than from what it permits the shareholder to do, then minority interests do matter. The same 50% shareholding that could not single-handedly pass an ordinary resolution is certainly sufficient to block an ordinary resolution taking effect. If your stake amounts to more than 25% then this is enough to block a special resolution.
A holding of more than 10% will block a general meeting taking place at short notice, and with more than 5% then your rights extend to requiring the company to hold a general meeting and circulating a written resolution.
Having only been published on 22 June and laid before Parliament on 23 June, the regulations largely reflect the government’s previous proposals and effectively require a company to update its own register of Persons of Significant Control (PSC) within 14 days of the change taking place, and inform Companies House of the change 14 days thereafter.
So any changes in PSCs will now show on the register far sooner than those which were previously contained in the annually filed confirmation statement. Note that the new requirements only apply to changes in PSCs; changes in minority shareholdings, which are not in themselves PSC’s and do not require registration for other purposes, will not trigger a filing requirement.
Compliance with the rules should not be overlooked since failure to provide accurate PSC information and to respond to notices requiring information are criminal offences carrying the possibility of fines and or a prison sentence of up to two years.
If you are in any doubt as to your obligations or need assistance with compliance relating to this latest legislation, do not hesitate to seek specialist advice from Pinney Talfourd’s commercial department.
Delivering insights into legal issues affecting the proper functioning of companies, the corporate specialist explained the types of problems that can occur and how an investor agreement could tackle them.
Using easy to understand scenarios, Edward Garston explained the types of issues which can occur if shareholders want to transfer shares, control commercial operations and if there is no overall board or shareholder control.
Following a lively question and answer session, he then turned his attention to common issues which can occur during company acquisitions and sales, and specifically with a share purchase agreement and other key documentation.
Commenting on the subject he observed “Accountants play a critical role during a company acquisition, and very often their input will determine how a transaction proceeds. It is essential, therefore, to focus on those areas most likely to require their specific consideration”.
The event was attended by IFA members drawn from across East London and Essex, as well as representatives from the IFA itself, banks, and alternative lenders.
Reports suggest that UK limited companies themselves are increasingly subject to ID theft with fraudsters known to change details of the appointed directors and registered office as a precursor to an elaborate scam. Once under their control, criminals are able to use the company to take out loans, make expensive purchases, or even hijack the Company for something more sinister.
Such is the risk that Companies House has just restated its advice for companies looking to protect themselves. Top of the list is the protected online filing scheme known as PROOF. This is now a well-established way to protect a company from unauthorised record changes by preventing the filing of certain paper forms which, if accepted for filing, would assist the criminal. Crucially, once a company becomes registered for PROOF it can no longer lodge notification of a new registered office or changes to directors on paper. Instead, all such changes must be made online using secure login details.
Part of the problem is the time taken for a legitimate director to discover that fraudulent filings have been made. After all, directors are not generally in the habit of checking their filing history on a regular basis and this delay creates a perfect window of opportunity. But a newly launched free Companies House service aims to address this by automatically sending an email notification every time a new document is filed for this, or any other, registered company. Learning of such changes early on is critical to help damage limitation.
Surprising to most is the limited extent of the registrar to investigate potential fraud. Although the official advice is to contact it early on, the registrar has no investigatory powers or powers of prosecution. In such circumstances, the Police and Action Fraud are better placed to assist.
In fact, it is only through the recent introduction of specific legislation that a mechanism exists to resolve disputes concerning registered office addresses. If a complaint is received that an address being used is not authorised, Companies House has the power to change the record following compliance with a dispute process. Although a step in the right direction, unfortunately, the timescales involved are such that this is unlikely to either deter or prevent fraudulent activity.
It has always been something of an anomaly that publicly available details of shareholders and other PSCs (Persons of Significant Control) are updated annually, whereas almost every other change triggers the need for a prompt announcement. Often boardroom changes are the only external indication that ownership of a private limited company has changed hands, with full details of the new owners only revealed once the next confirmation statement is filed. Details of a well-timed deal could be kept in the dark for as long as twelve months, and a quick succession of transfers may never see the light of day at all.
All of this is due to change on June 26 as a result of the implementation of the Fourth Money Laundering Directive. Current proposals are for PSC reporting to be removed from the confirmation statement in favour of prompt filing of any changes. Companies will have 14 days to update their internal PSC register, and then a further 14 days to file at Companies House.
Further changes will see rules on PSC exemptions tightened.
Interestingly, Companies House has made it clear that it plans to improve the accuracy and completeness of PSC data by introducing new compliance activities marking a distinct departure from taking information provided on trust. The new plans include contacting those with clearly incorrect data as well as the introduction of a “report it now” feature to simplify third party enquiries.
Whether or not this will see the UK becoming the most transparent place in the world to do business remains to be seen. It is consistent with recently announced requirements for overseas corporates to provide PSC information if they tender for government contracts or acquire UK property, a pioneering move compared to other developed economies. However, there are concerns that in the absence of similar requirements in other jurisdictions, the move could dampen overseas investment from legitimate sources preferring to keep activities private. Exact details of these plans are still being worked on pending the conclusion of a public consultation.