The importance of managing and maintaining a company’s corporate register was evinced in the final stages of a recent sale transaction, when the purchaser’s lawyers asked my client to produce his share certificates. My what? he exclaimed, seemingly oblivious to the existence of such documents.¬† As the conversation developed, it became clear that not only was the company’s corporate register not up to date or readily available, its very location was a mystery.

Phone calls to the company’s previous accountant ensued, with the offending binder tracked down to a dusty archive box, apparently unopened since the company was formed many years earlier. The opposing lawyers were quick to point out that as sole Director and Company Secretary, my client had been remiss in his maintenance of the register and had not complied with his legal requirements accordingly.

This story has a happy ending – the transaction proceeded as planned – however the incident highlights one area of company management that often slips through the cracks and one that could in effect be a dealbreaker in a larger or more complex transaction. It is all too easy to set up a company in Australia and comply with the superficial compliance of a small corporate structure. Every March, the Australian Securities and Investment Commission (ASIC) mails out an annual Company Statement detailing current name, registered address, shareholders, paid up capital and office bearers. Unless changes are required, the only real obligation of the recipient is to pay annual registration fees and make note of the new Corporate Key for future ASIC filings.

Unfortunately, it is likewise all too easy to forget the other responsibilities of the Company Secretary (noting that so many sole Directors of Pty Ltd companies wear that hat as well), including maintaining the share register, recording minutes of the (at minimum) annual Board Meeting with the necessary resolutions and keeping copies of share certificates. In reality for most, it is only approximately 15 minutes work per year to satisfy these obligations, but as audits are rare, non-maintenance of the corporate register doesn’t normally become an issue until due diligence investigations or transaction completion in sale transactions

Poorly maintained corporate registers are very real concerns in share sale transactions, as the purchaser is expecting to take over a clean entity and once purchased is responsible for historical actions as well. Asset sales are less affected at the time of transaction, however when the selling entity is finally liquidated, the company’s register typically needs to be up to date to satisfy the liquidation process. Board minutes recording resolutions on the disposal of assets, dissemination of proceeds and changes in office holders enable the liquidator to properly close the book on a company, whilst the current Corporate Key is required on all ASIC forms.

Small business owners juggling both roles really have two choices: maintain the Company Secretary role and keep the register up to date accordingly, or appoint an external party to take on those responsibilities. If the former is the preference and the requisite knowledge is lacking, they could consider taking a short course with the Governance Institute of Australia such as their half-day Accidental Company Secretary program. If the latter, a company’s external accountant is usually a good first point of call.

It is not overly difficult, onerous or expensive to keep a corporate register up to date. It is, however, much harder and more expensive to do so retrospectively when a large cheque is in the offing. Completing a business sale sounds easy in theory, but so many pitfalls exist that can derail a successful transaction. It is far easier to pre-empt and address these common perils early on than deal with them at the death knell with a sale hanging in the balance. Lawyers being the gatekeepers of risk are all too ready to delay completion if all boxes are not satisfactorily ticked, so avoid their potential wrath by being compliant in the first place.