Corporate mistakes your business may have made

...and what you should do about them.

Corporate requirements can be fiddly and, sometimes, unintuitive. It is easy for businesses to trip up on corporate issues. In this series we look at 10 of the most common corporate mistakes companies make, and, more importantly, what they should do about them.

When does it happen?

Usually where a business is a bit older; perhaps because the current management have not always been around and previous directors/shareholders have moved on.

What mistakes are made? 

Key corporate records are missing (or even never existed!). This can particularly be an issue if there has been a significant re-organisation in the past where current management were not involved. Significant re-organisations may include:

  • A new limited company being set up and contracts and other assets transferred to it
  • Shares being bought back from a former exec
  • A new holding company being put in place

Why does it matter? 

If there is ever a claim from a third party that they own (or have a right to own) any shares in your company or any of your business’ assets, then you may be poorly placed to defend that claim.

You may also be in breach of the record-keeping requirements under the Companies Act 2006 which may mean that your business and/or its directors are committing a criminal offence.

If you come to sell your business, the buyer will want absolute certainty as to what it is buying – the buyer will either want you to be legally responsible for any issues historically (e.g. by way of indemnities and warranties) which may seem unfair especially if you were not around when the restructure took place or, worse, refuse to do the deal altogether. Poor record-keeping can also be a “red flag” to a potential purchaser as to how well you run your business. Deals may also be delayed as you locate the documents or if you need to take other remedial steps.

What can you do about it? 

Act now. Locating records can take time, and it is best to do this without the pressure of a claim or a possible exit. Restorative steps are often much easier (and even more tax efficient) in this context. Taking action now will also paint you in a good light if you come to sell your business in the future.

Interested in reading what other mistakes you business may have made? You can read the full article with #1 – 10 here.