A share register is a critically important company document. Under section 87 of the Companies Act 1993 (Act), every New Zealand company must maintain a share register. There are no exceptions.
Failure to maintain a share register is an offence by the company and every director. On conviction, the offence carries a potential fine not exceeding $10,000. This is only one of many potential offences and fines that can result from breaching your obligations regarding share registers.
What Must a Share Register Contain?
The share register must (per s 87(1) and (2) of the Act):
- record the shares issued by the company. Section 87(1) does not contain any time limit, suggesting the share register must record the shares issued by the company since its incorporation;
- state, whether under the constitution (if any) or terms of issue, the shares have restrictions or limitations on their transfer and, if so, where the document(s) containing the restrictions or limitations may be inspected. Noting the restrictions or limitations on transfer is important because the Act assumes shares are otherwise transferable; and
- state, with respect to each class of shares (if more than one):
- the names, alphabetically arranged, and the latest known address of each person who is, or has within the last 10 years been, a shareholder.Note that the requirement to arrange shareholders alphabetically can be problematic in the case of joint shareholders. Clause 11 of Schedule 1 of the Act, which applies to shareholder meetings, states that the vote of the person named first in the share register will be counted to the exclusion of others. Best practice would suggest asking joint shareholders which holder should appear first, as alphabetising seems a tad arbitrary;
- the number of shares of that class held by each shareholder within the last 10 years. While the wording of this requirement must suggest a running total, the better interpretation is that the share register should disclose the number of shares held by each shareholder at any given time within the last 10 years; and
- the date of any:
- issue of shares to;
- repurchase or redemption of shares from; or
- transfer of shares by or to,
each shareholder within the last 10 years, and in relation to the transfer, the name of the person to or from whom the shares were transferred.
Share Register vs Register of Companies
The share register is an internal company document that is separate from, and contains different information to, the register of companies. The register of companies is the register that the Registrar is required to keep under the Act (section 360), and which is available online through the Companies Office website. It contains details of current and removed companies, including some share details, and information and documents that companies, directors, liquidators, and others are required to give to the Registrar under the Act.
But the register of companies does not, and cannot, disclose the details required for a share register. For example, the register of companies has no mechanism to record share transfers. Instead, it only records the shares and shareholders as at the filing of the company’s annual return (or earlier if the information is notified outside of annual return filing time). Another example is share classes, in that the register of companies has no way of distinguishing between different classes of share.
The Companies Office gives a helpful reminder about the importance of share registers when people try to notify share updates. As the following warning appears:
- This online service allows you to update Companies Office records at any time to reflect the current shareholding of the company. You must ensure that the company’s own share register is also updated.
- I am aware of the requirements of [s] 87 of the Companies Act 1993 that requires every company to maintain a share register that records the company’s share and shareholder details.
Despite the above warning, and the different requirements of a share register and the register of companies, people (even some professionals) often mistake the register provided by the Companies Office as being a substitute for a share register. This is an unfortunate error. Apart from the risk of an offence and fines, failure to maintain a share register can have significant, and most likely unintended, consequences.
Shareholders, Shares, and Rights Attached to Shares
A “shareholder” for the purposes of the Act is defined as a person named in the share register as a holder of one or more shares in the company (section 96). Accordingly, if a person is not entered in a company’s share register, they are technically not a shareholder at all.
A share is issued only when the name of the holder is entered on the share register (section 51). The share register entry is, therefore, the key event that completes an issue of shares. Without a share register entry, there is arguably no share issue at all, even if the directors have given notice of the issue to the Registrar (and thereafter have the issue disclosed on the register of companies). That notice will have no effect if the underlying share issue has not properly occurred by entry of the holder’s name in the share register.
Similarly, a transfer of shares will be complete when the name of the transferee is entered on the share register (section 84). Unlike share issues, however, there is no requirement under the Act to give notice of share transfers to the Registrar. People sometimes update the current number of shares on the register of companies voluntarily after a share transfer. But such an update is not necessarily reflective, and will do nothing to support the legal effectiveness, of the underlying transaction.
The High Court does have the power to fix errors in a share register by ordering rectification (under section 91). However, if that does not occur, the share register is prima facie (accepted as correct unless proven otherwise) evidence of the legal title to shares (section 89).
Because of its central importance as a basis for legal title, share registers cannot contain any notice of a trust, whether express, implied, or constructive (section 92). This is because trusts are relationships and not legal entities, and can only hold title to property through the trustees. To the extent a company’s share register mentions a trust, it is in breach of the Act.
The company may treat the registered holder of a share, per the share register, as the only person entitled to exercise voting rights, receive notices (including of shareholder meetings), receive distributions, and exercise other rights and powers attaching to the shares. It is, therefore, vital for shareholders to ensure the share registers of companies in which they expect to hold shares are correct and complete. Otherwise they could miss out on some or all of the benefits that the shares provide.
A Director’s Duty to Supervise
The Act contains a specific duty for directors to supervise the share register. Under section 90(1), every director must take reasonable steps to ensure that the share register is properly kept and that share transfers are promptly entered on it.
Failure to comply with this duty is also an offence, carrying a potential fine not exceeding $10,000. This is in addition to the offence of failing to maintain the share register under section 87.
Unlike most director’s duties, which are owed to the company itself, this duty is owed to shareholders (per section 169(3)(a)). This means that a shareholder or former shareholder may bring an action against a director personally for breach of the duty.
Public Inspection
The share register can be inspected by the public. Any person may serve written notice on any company of their intention to inspect its share register.
If a company fails to keep the share register available for inspection in the manner required by the Act, the company and every director commits an offence. Once again, the offence carries a potential fine not exceeding $10,000.
Share Register at Registered Office
Another compliance requirement is to keep the share register at the company’s registered office, along with the other company records mentioned in section 189(1) of the Act.
Failure to do so a separate offence, which also carries a potential fine not exceeding $10,000.
The Share Register is Important!
The above requirements, and the potential consequences of non-compliance, highlight the fundamental importance of share registers to the proper administration of a company.
Contact Us
If you need a professional to look after your company’s share register, or have a question about share registers or company administration generally, get in touch with our business and commercial team.