Getting your share register in shape

Bill O’Boyle outlines the five common mistakes companies make with their share register.

A share register is essentially an asset register, it’s the final word on who owns what when it comes to that particular company. It’s critical that the share register is kept accurate and up-to-date because it is the official record of share ownership and can override the Companies Office records.

The most basic mistakes that we see companies make are not having a share register or not keeping their share register up-to-date. Too many companies rely on occasionally updating the Companies Office and hoping that this is a passable substitute for the official record which they are in fact, obliged to keep themselves.

Companies are required by the Companies Act 1993 to maintain their own share register and to keep it up-to-date; but so many companies let their share register slip out of date. Whilst this doesn’t seem to cause too many problems on a day to day basis, an out of date share register can cause real issues when it comes time to raise capital, vote on an important issue, or distribute a dividend. 

The five most common problems we see with a company’s share register are: 

1) Updating details
When people move house or change their email address, they usually remember to update utility and telecommunication companies, however, they often forget to let the various companies that they own shares in know about the change. For a public company, the main registry companies can coordinate address changes, but for private companies it can get messy. 

2) Share transfers
Most shareholders in a private company will have purchased their shares directly from the company and signed a subscription agreement when they did so. However, things can get complicated when someone sells their shares to a new shareholder, as most companies aren’t equipped to record share transfers and in turn, update everyone’s current shareholdings.

3) Legal entities
Changes in circumstances such as a divorce, death, or transfer to a family trust can cause several problems. Updating the legal entity that holds shares in a private company can seem trivial, that is until the company suddenly becomes profitable or is worth a lot of money, in which case the tax consequences of transfer delays in ownership can be significant. Many companies don’t know that it’s against the law to record a shareholding in the name of a trust. When a trust owns shares in a company, it’s the trustees of a trust that must be entered as the legal shareholders.

4) Voting procedure 
Due diligence by large investors will often include a review of annual general meeting minutes and important shareholders resolutions (such as the resolutions to issue new shares). If these resolutions haven’t been voted on by enough shareholders, it can cause problems down the line. It’s important to record shareholder resolutions and votes in a way that can be stored and easily referred back to in the future.

5) Share classes
Seemingly small things like share classes, voting rights and anti-dilution rights can make a significant difference to the eventual return that an investor receives, so keeping track of these things is absolutely crucial.

To help companies solve these problems, we have created an online share registry service that can track investments into a company over time. This register includes an investor dashboard and allows individual investors to review their shareholdings. Companies can also log in to manage their share registry. Lawyers, accountants and company directors can also log in as managers to view and update it. To learn more about the Snowbal Effect share registry visit: https://www.snowballeffect.co.nz/share-registry

Bill O’Boyle, is Head of Growth Capital at Snowball Effect.