Total Business Magazine

5 Things to Consider When Managing Accounts and Shares Pre-M&A

Over the past two decades, Companies House has been developing its online strategy with an aim to be fully digital by 2020 – so how can businesses ensure that they are up to date filing crucial documents in the correct manner? Lisa Botterill, Partner in the corporate team at Shakespeare Martineau, explains for Total Business.

For the majority of businesses, being able to file accounts and other documentation online at Companies House is largely positive, offering an easy and streamlined way for businesses and their accountants to keep on top of vital admin, and providing data which is immediately accessible to all.

Whether a business is managing accounts, filing annual returns, or updating shareholder information, the consequences of getting it wrong – or failing to submit documents on time – may be detrimental. Incorrect filing has been known to cause disruption to M&A activity, i.e. leading to a sale falling through or can, in some cases, even lead to criminal prosecution.

Changes must be filed – and filed on time

From its founding in 1844, up until 1998 businesses sent their documents to Companies House via post. Nowadays, when a company is incorporated, an individual ‘filing code’ is issued, allowing updates to submitted online. Whilst convenient, the online filing process can result in timelines being squeezed and changes to crucial documents being left until the last minute; businesses should be aware that updates are not instantaneous and may take some time to process. Therefore, good planning is essential.

The share structure in accounts must reflect those in statutory books

Whether the aim is to sell a business or a company or restructure a shareholding, care must be taken to ensure that filing is done correctly first time. During the due diligence process, all of the company records will be checked in fine detail. Consequently, there needs to be a clean trail showing how the existing shareholdings have been reached and structured.

Problems occur when the accounts and annual returns fail to match up with the reality, making it difficult to differentiate between the shareholders and the how many shares have been issued. Critical mistakes like these can cause serious issues, particularly where rights are not properly attached to shares, and can jeopardise the integrity of a deal.

All changes must be accounted for

Recently, there has been a significant rise in the number of changes to share structures which have been filed online but are not reflected in the accounts. If accountants and shareholders are unaware of these alterations, the accounts are rendered incorrect. This is where larger problems can creep in, for example, a dividend may be set out in the accounts, however, the company may not have declared the dividend in favour of the correct shareholders. Similarly, failure to update records at Companies House can mean that it is common for shares to ‘disappear’ without evidence or documentation, causing issues when structuring a transaction.

Check share capital before making a sale

Share capital must be checked in advance of deciding to sell – whilst this may seem very simple, it can sometimes be a complex process. Whilst Companies House used to check for errors in filings and flag them at an early stage, this is no longer the case and must now be done by the business and its advisers. By cross-referencing the online filing with the original books, the record is likely to be more accurate and any issues can be identified and ironed out before the sale process starts in earnest.

Keep a close network of professional advisers to hand

There can sometimes be a tendency for the line between finance and legal work to become blurred and some advisers offer advice spanning both areas. In many cases, the integrity of deal is underpinned by having distinct specialist advisers who are well equipped to deal with the complexity of the transaction and the business plan, preventing organisations from coming unstuck.

As with all administrative errors, it is important that mistakes are rectified as soon as reasonably possible in order to minimise the knock-on effects. Ahead of any corporate transaction taking place, businesses and individuals should be confident that their accounts and company structures are in the best possible shape to ensure that the completion of the deal is as smooth as possible.

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