Claire Lord explains why it’s better to get your business’s record-keeping right in your own time and on your own terms.
"Run your company like you are planning to sell it” was a piece of advice given to a room full of early stage companies attending a talk being delivered by a tech entrepreneur, who had successfully navigated the pathway from idea through development and scaling to a lucrative exit. He was calling it as it was: you are pursuing your respective endeavours to make money, so do everything you can to maximise that return.
When great ideas are being converted into profit-generating businesses, the focus is often on the development of complex technologies, the routes to market, the sales strategies, the hiring of the very best employees quickly. Often the paperwork, the record-keeping, the ‘routine’ pieces of the puzzle are put on the long finger, to be dealt with when there is time. But rarely is there ever time and the longer the record-keeping is neglected, the harder and more expensive it becomes to put right.
Irish companies are required by law to maintain a number of books and registers. These include proper accounting records that correctly record and explain the transactions of the company and that enable its assets, liabilities, financial position and profit or loss to be determined with reasonable accuracy at any time.
A company must keep registers of its members, directors and secretary, and disclosable interests. It must also keep copies of instruments creating charges and copies of directors’ service contracts. The Companies Act 2014 further requires companies to keep minutes of shareholder and director meetings. In respect of minutes from shareholder meetings, the minimum detail to be recorded is a summary of the proceedings of the meeting and the terms of the resolutions passed. In respect of minutes from board meetings (which includes meetings of committees of the board), the minimum detail to be recorded is the appointments of officers made by the directors, the names of the directors present, a summary of the proceedings and details of all resolutions passed. In the case of both meetings of the shareholders and directors of a company, the minutes should be prepared “as soon as may be” after the meeting has been held.
Certain of the registers and documents required to be kept by a company can be inspected by the shareholders of that company. These are its registers of its members, directors and secretary and disclosable interests, and the instruments creating charges and directors’ service contracts. Members of the public are entitled to inspect a company’s registers of members, directors and secretary and disclosable interests.
A company is permitted to keep any of these registers and documents electronically (other than minutes of meetings of shareholders) once it puts adequate measures in place to guard against, and detect, falsification and once they can be easily reproduced in legible form at a place in Ireland.
When it comes to the day-to-day running of an Irish company, it would be unusual for a request to be made by a shareholder or a member of the public to inspect the registers and documents that the law permits them to inspect. On the other hand, if a company was the subject of an interested investor or acquirer, it would be most usual for them to require production of all these registers and documents for due diligence purposes without delay (subject, where the need permits, for obligations of confidentiality to be agreed and documented).
When there is a gap in record-keeping, which is likely to occur when ‘the paperwork’ has been neglected, not only is the prospective investor or acquirer unable to satisfy themselves that they have the full history of the company in terms of its governance proceedings and compliance with its statutory obligations, but the impact in terms of cost on the target company and its owners to rectify that neglect under time pressure and the scrutiny of an impatient investor or acquirer can be significant.
Record-keeping is one of the things that you as a business owner can control. Record keeping can be routine and inexpensive when the time is taken at the outset to get the processes, procedures and resources right.
Even if you don’t have plans to sell your company, run it like you are planning to sell it. It’s better to get the record-keeping right in your own time and on your own terms, rather than it being one of the elements that undermines or adds unnecessary cost to that lucrative exit when it does come.
Claire Lord is a Corporate Partner and Head of Governance and Compliance at Mason Hayes & Curran.
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