The importance of a Company Secretary to employee share schemes
When designing and implementing an employee share scheme the importance of a company secretary (or the person performing the duties of a company secretary) is vital and should not be underestimated.
A Company Secretary and their role
The role of a Company Secretary can incorporate all areas of a company’s activities. Depending on the size and nature of the company and the qualifications and experience of the individual, these activities will be divided into three principal categories;
The Company – the Company Secretary will often be a central source of information to a board and senior executives when ensuring the company’s compliance with relevant legislation and codes of conduct specific to the company.
The Board – the Company Secretary will provide practical support and guidance to all board members, particularly to non-executive directors, as well as acting as a guide for the company’s corporate governance policies.
The Shareholders – the Company Secretary acts as the primary point of contact for shareholders and institutions.
The role a Company Secretary has when setting up an employee share scheme is critical. They can act as an anchor for all information needed when implementing a scheme, as well as making sure all company registers and documents are up to date.
Company secretarial records and share schemes
When implementing an employee share scheme, the company directors and shareholders are usually concerned about how much the design and implementation of a scheme will cost.
Company secretarial records are one of the main factors that will influence the cost of implementing a share scheme. If the company secretarial records are up to date and in a good state, the work on incorporating amendments to introduce an employee share scheme will be a far more straight forward process..
If company secretarial records are not up to date or, are incomplete or inconsistent this will affect the set-up of an employee share scheme, as time will need to be spent reconciling records before any further or new share capital changes are made.
When RM2 commence work on implementing an employee share scheme RM2 need to assess the following:
- The shareholders - who they are and how many shares they each hold;
- The Articles of Association and if anything needs to be updated in order to comply with the implementation of the scheme;
- The company share capital and share classes including information on the rights and any restrictions attaching to shares;
- Whether the company has any shareholders' or investment agreements in place; and
- Details of any recent share transactions.
Considerations and common errors
When RM2 is implementing an employee share scheme we come across common errors that crop up. These can include but are not limited to the following:
- When any shares are allotted, a Companies House form SH01 is required to be filed. Similarly, any changes to the company’s share capital such as a subdivision or reduction in the issued share capital or the purchase of the company’s own shares should be reported on the appropriate designated forms (subdivision, SH02; purchase of own shares, SH03). Company Law procedure and reporting requirements are vital for a company. Simply reporting the amendment in your annual return is not sufficient;
- Mistakes on the share capital register and discrepancies with the filed accounts detailed on the annual confirmation statement (“CS01”) formally known as the AR01;
- Share certificates - either an original or a copy should be issued by the Company Secretary to all shareholders.
- Omitting the filing of shareholder resolutions and amendments to the Articles of Association - any resolutions or changes to articles must be filed with Companies House;
- Desired amendments may require shareholder consent but the company does not have current contact details for all shareholders and in some cases does not even know if some of their shareholders are still alive;
- Power to allot - the shareholders must give authority to allot shares or grant rights over shares.