This background paper contains a brief outline of:
- The key provisions in company law relating to a company's record keeping obligations;
- The various registers required to satisfy the company's statutory obligations; and
- The nature and extent of information that should be recorded in each register to meet the statutory obligations.
We also discuss a number of other records which, although not strictly required by law, in our opinion should be maintained as a matter of good company secretarial practice and which will assist the Directors and Management of a company in complying with their statutory record keeping obligations.
Key Provisions in Company Law
The provisions which impose obligations on directors to maintain certain records are, for the most part, contained in the Companies Act 1993 ("the Act").
While directors may delegate administrative tasks to a third party (with certain prohibitions set out in section 130 and the Second Schedule to the Act) they will always be legally responsible for the way the task has been carried out. A delegate, in certain circumstances could him or herself be deemed to be a director whether or not that person has been formally appointed as a director.
A director who fails to carry out his or her responsibilities may be liable:
- To be sued by other persons for breaching one or more of the directors general duties that are contained in sections 131 to 138; and
- To be charged with a criminal offence. For example if company records are not kept at its Registered Office, or at an address of which notice is given to the Registrar, then the directors will each be liable on conviction to a maximum fine of $10,000; falsifying of records is punishable by a maximum fine of $200,000 or a maximum five years in prison.
Type and Content of Registers Required
This is a general guide and has been designed as a simple introduction to an involved and wide-ranging area of the law. A large amount of important administrative detail has been left out of this paper and any director should obtain further and more detailed advice in relation to the obligations to keep various registers.
Address at Which Records and Registers are to be Kept
The registers and records numbered 2 to 11 below contain those records which a company is required to keep at its Registered Office, however these records may be kept at an address other than the Registered Office if notice is given to the Registrar under within 10 working days of their first being kept elsewhere.
Form of Records
Records must be kept:
- In a written form; or
- In a form or in a manner that allows the documents and information that comprise the records to be easily accessible and convertible into written form.
The Board of Directors has the responsibility of ensuring that adequate measures exist to prevent the records being falsified and to detect any falsification of them.
1. The Certificate of Incorporation
The Certificate of Incorporation is an important document providing conclusive evidence that all the registration requirements have been complied with and that each company has come into existence as a separate legal being.
The Certificate of Incorporation is required to be held by a company and it is usually kept at the front of the various statutory Registers.
2. The Constitution
The Act contains the provisions that establish a framework for the management of the internal affairs of the company. We note that the constitution of a company may replace parts of the provisions in the Act that are presumed to apply unless otherwise provided for in the company's constitution. The constitution is also required to be held by the Company.
3. The Interests Register
The Interests Register is a list of the material interests that the directors have in:
- Businesses with which the company is dealing; or
- Transactions involving the company.
The following information must be entered in the Interests Register.
(a) Material interests in transactions of the Company.
A director who is ‘interested' in a transaction must enter the details of that interest into an Interest Register.
The term interested is defined in section 139. A director will be interested in the transaction if he or she:
- Is a party to, or will or may derive a material financial benefit from, the transaction; or
- Has a material financial interest in another party to the transaction; or
- Is a director, officer, or trustee of another party to, or person who will or may derive a material financial benefit from, the transaction, not being a party or person that is:
- The company's holding company being a holding company of which the company is a wholly owned subsidiary; or
- A wholly owned subsidiary of the company; or
- A wholly owned subsidiary of a holding company of which the company is also a wholly owned subsidiary,
- Is the parent, child, or spouse of another party to, or person who will or may derive a material financial benefit from, the transaction; or
- Is otherwise directly or indirectly materially interested in the transaction.
The interest must be disclosed in accordance with section 140 as soon as the director becomes aware of the fact that he or she is interested in the transaction or proposed transaction. If the company has more than one director it must disclose to the Board in addition to entering in the interests register the following details:
- If the monetary value of the director's interest is able to be quantified, the nature and value of the interest; or
- If the monetary value of the director's interest cannot be quantified, the nature and extent of the interest.
A company may avoid a transaction at any time before the expiration of three months after the transaction is disclosed to all the shareholders, unless the company receives ‘fair value' under the transaction. An interested director may vote on the transaction.
(b) Information acquired by virtue of office that is to be disclosed to someone else or used for purposes other than those of the Company.
A person who obtains information, not otherwise available to them, in their capacity as a director or employee of the company is prohibited from making use of that information or disclosing it to any other person except:
- For the purposes of the company; or
- As required by law; or
- In complying with section 140; or
- Pursuant to sections 145(2) and 145(3).
Unless prohibited by the Board of Directors, a director may disclose information to:
- A person whose interests the director represents; or
- A person in accordance with whose instructions or directions the director may be required or is accustomed to act in relation to the director's powers and duties. If the director discloses the information the name of the person to whom it is disclosed must be entered in the Interests Register
A director may otherwise disclose, or use information if:
- Particulars of the disclosure, use, or the act in question are entered in the Interests Register; and
- The director is first authorised to do so by the Board; and
- The disclosure, use, or act in question will not, or will not be likely to prejudice the company.
(c) Share dealings in the Company or related Company.
Certain share dealings must be disclosed to the Board and be recorded in the Interests Register. A director who acquires or disposes of a Relevant Interest in a share issued by the company must disclose to the Board of Directors, forthwith after the acquisition or disposition:
- The number and class of shares in which the relevant interest has been acquired or the number and class of shares in which the relevant interest was disposed of, as the case may be; and
- The nature of the relevant interest; and
- The consideration paid or received; and
- The date of the acquisition or disposition.
These particulars must then be entered in the Interest Register.
We note that a director will have a Relevant Interest in a share issued by the company if, among other things, the director:
- Is the owner of the share; or
- Has the power to control voting rights attached to the share; or
- Has the power to control the acquisition or disposal of the share; or
- By virtue of a trust, may at any time have the powers in (i) and (ii) above.
(d) Payments to or benefits received by directors from the Company.
The Board must upon authorising the:
- Making of a payment of remuneration or the provision of other benefits by the company to a director for services as a director or in any other capacity; or
- Payment by the company to a director or former director of compensation for loss of office; or
- Making of a loan or the giving of a guarantee to a director; or
- Entering into of a contract to do any of the above;
Enter the particulars of the payment or benefit or loan or guarantee or contract in the Interests Register.
(e) General Disclosures
Directors may also make General Disclosures of Interest. A General Disclosure will, from the date disclosed, constitute perpetual notice to the Company of any other directorships, shareholdings and positions of office that may cause the Director to be interested in any transaction following the date of disclosure. No subsequent disclosure of the interest would then be required.
4. Minutes of Meetings and Resolutions of Shareholders
Although the Board of Directors must manage the business and affairs of the company the shareholders of the company have an integral part to play in the management of the company through shareholder meetings.
While shareholders may not be entitled to make management decisions for the company they are entitled to discuss company management, and to pass resolutions relating to it under the management review provisions of the Act.
There are three types of shareholder meetings. These are:
(a) The Annual Meeting of the Shareholders.
The Board of Directors must call Annual Meetings once in each calendar year, not later than six months after the balance date of the company and not later than 15 months after the previous annual meeting.
The Act provides that the shareholders must, unless the shareholders pass a unanimous resolution electing not to appoint an auditor, at each general meeting appoint an auditor to:
- Hold office from the conclusion of the meeting until the conclusion of the next annual meeting; and
- Audit the financial statements of the company and, if the company is required to complete group financial statements, those group financial statements, for the accounting period after the next meeting.
Otherwise, the Act does not specify what is to be transacted at the meeting. Generally the ordinary business will be:
- The consideration of the accounts and directors' and auditors' reports; and
- The election of directors in place of those retiring.
(b) Special meetings.
Every meeting of Shareholders other than an Annual Meeting is known as a Special Meeting. The Board of Directors or anyone else authorised by the Constitution may call a Special Meeting.
The business of such a meeting will include:
- Confirming decisions made by the directors;
- Making changes to the Constitution;
- Approving a Major Transaction (see section 129(2));
- Putting the company into liquidation;
- Approving proposals affecting shareholders rights (see section 116); and
- Conducting a management review (see section 109).
(c) Class and Interest Group Meetings
Where a company's shares are divided into different classes, with differing rights attaching to them, it may be necessary at times for each class to have a separate meeting.
The company must keep records of all resolutions and minutes of the meetings created within the last 7 years.
The following records of Shareholder's meetings should be kept:
Minutes are records of the proceeding of the meeting. Under clause 8(1) of the First Schedule of the 1993 Act, the Board of Directors has the responsibility to ensure that minutes are kept of Shareholder and Board meetings. The chairperson should sign the records as being a true and correct record of the proceedings of the meeting. This is important because, under clause 8(2) of the First Schedule to the Act, once this is done the minutes will be prima facie evidence of the proceedings.
(ii) Notice of Meetings
While the Act does not specifically say so, it is prudent to keep extensive records of the notices that are required to be given to shareholders of meetings.
The Notice requirements are set out in the First Schedule of the Act, which provides that at least 10 working days notice must be given in writing to:
- Every shareholder entitled to receive notice of the meeting; and
- Every director; and
- An auditor of the company.
The notice should set out the date, time and place of the meeting, the matters to be discussed and the text of any special resolution to be submitted to the meeting.
The meeting makes its decisions by passing resolutions. Unless the Act or the Constitution otherwise provides, any business is decided by ordinary resolution. This requires a simple majority of those entitled to vote.
There are however a number of matters that require a special resolutions. These resolutions require a majority of 75% (or higher majority, if required by the Constitution) of those entitled to vote.
(iv) Resolutions Pursuant to Section 122(1)
The Act recognises that many companies do not require the formal process of a meeting in order to reach decisions. Section 122(1) provides that a resolution may be valid as if passed at a meeting if it is signed by 75% of the voters who together hold at least 75% of the votes entitled to be cast on the issue. The final resolution must be sent to every shareholder that did not sign it within 5 working days of it being passed.
(v) Unanimous Consents Pursuant to Section 107
Section 107 allows certain transactions to be completed without the need for compliance with the procedure otherwise required if the shareholders unanimously consent to the transaction without compliance with that procedure being used.
5. Minutes of Meetings and Resolutions of Directors
As stated above, the management of the firm is in the hands of the Board. All important decisions of the company should be made by the Board, i.e. that is a quorum of directors acting in unison at a meeting at which proper notice has been given, by way of resolution.
The following records should be kept in each Company Register:
(a) Notice of Meetings.
Generally, notice of every meeting of a company should be given to each director. The notice should set out the date, time and place of the meeting and the matters to be discussed. A meeting called without proper notice cannot pass effective resolutions. The notice requirement can be waived if all the directors agree to do so or attend the meeting without protest. In such a case documentary evidence of the waiver should be kept in the Internal Company Register. It is usual for this matter to be addressed in a company with only a few directors by all the directors signing the resolution.
Some companies have Constitutions that do not expressly provide for notice to be given for Director's meetings. As these Constitutions delete the provisions in the Third Schedule of the Companies Act 1993, then common law would apply and adequate notice of a Board Meeting is required.
The Board of Directors is required to keep minutes of each Board meeting. This is not a small matter. The Act requires the directors, in making many decisions, to provide reasons for those decisions. This means that, when making such decisions, all information on which the decision has been based should be recorded to provide the directors with maximum protection against liability.
As we have discussed, it is important to be aware of when the minutes should record all the information on a particular decision, or alternatively, when a brief note will suffice. At the very least, the minutes should state:
- Date and place that the meeting is held;
- Names of the directors present;
- Name of the chairperson of the Board, or if the chairperson is not present, then the name of the Chairperson of the meeting;
- Any declarations of interests made by directors; and
- Details of important discussions held at the meeting and the result of resolutions put to the meeting.
The extent to which the minutes should record the detail of the proceedings at the meeting should largely depend upon the matter discussed at the meeting. Generally it is advisable to record only the minimum of detail to avoid the possibility that over-elaborate minutes could inculpate the companies, or the directors personally, either criminally or civilly.
However, as the legal requirements on companies and directors have become more onerous, especially in areas relating to solvency or where a duty of care is imposed, it has become increasingly important for the minutes to record that the Board has deliberated on the necessary considerations required to discharge its duty of care.
For example, if a major transaction or significant decision is being considered, it may be prudent to chronicle the Board's deliberations regarding the engagement of expert advisers such as lawyers or accountants, to summarise briefly the advice that the expert adviser's provided and to record that the Board relied upon such advice.
It is also important that the minutes, once created, are not tampered or interfered with. Such interference can bring fines of up to $200,000 and five years in prison.
The Board of Directors makes decisions by passing resolutions. A resolution will be passed when all directors present agree to it or a majority of the votes cast are in favour of it.
There are numerous transactions under the Act that require the directors to pass specific resolutions with a set content. These transactions include:
- The issue of new shares (Section 47);
- Distributions to shareholders (Section 52). This is likely to be the most common sort of transaction undertaken. We note that there is a wide range of payments to shareholders that are caught by this section;
- Acquisition by the company of its own shares (sections 60 and 61);
- Amalgamations (sections 220 to 222); and
- Financial assistance by the company in the purchase of its own shares (sections 76 to 81).
All these transactions require, among other things, the company to resolve that the company is solvent in that, or with slight variations:
- It is able to pay its debts as they fall due; and
- The company's assets exceed its liabilities.
A resolution in connection with one of these types of transactions must set out in full the reasons for the directors passing the resolution. We note that such transactions should only be entered into after appropriate accounting and legal advice has been taken and the consideration of that advice is evident in the minutes.
6. Certificates Given By Directors Under the Companies Act 1993
The directors are required to give numerous certificates. These provisions relate to the:
(a) Consolidation of the Company Constitution (section 33(4)).
(b) Issue of shares (sections 47(2) and 47(4)).
(c) Issue of Options and Convertible Securities (section 49(2)).
(d) Distributions to Shareholders (section 52(2)).
(e) Company acquiring its own shares (sections 60(5) and 61(3)).
(f) Offer of shares on the Stock Exchange (section 63(3))
(g) Redemption of Shares (sections 69(4), 70(2) and 71(3)).
(h) Company's financial assistance in the purchase of its own shares (section 76(4), 77(2) and 78(3)).
(i) Unanimous assent required for certain actions (section 108 (2))
(j) Board voting remuneration and other benefits to Directors (section 161(4))
(k) Insurance and indemnity given to directors by the company (section 162).
(l) Approval of amalgamations (section 221(1), 221(2), 223(c) and 223(e)).
(m) Liquidation of the company (section 243(9)).
7. Register of Directors
The full name and address of each current director must be kept. A company must send a Notice of Change of Directors in the prescribed form to the Companies Office within 20 working days of the change being effected.
8. Copies of All Written Communications Given to Shareholders
Section 216(a)(b) provides that a company must keep copies of all written communications to all shareholders or all holders of the same class of shares during the past 10 years, including annual reports made under section 208.
There are numerous other provisions in addition to section 208 under which the company must provide certain information to shareholders. These include:
- Section 83(1) (Statement of Shareholder Rights); and
- Section 216 (Certain company records).
There are also a number of particular transactions that require specific information to be disclosed to shareholders so that they can make informed decisions about the transaction.
These documents should be kept in the "Company Reports" section of the Register.
9. Copies of All Financial Statements
Under section 189(1)(h) copies of all financial statements and group financial statements which are required to be completed by the Act and the Financial Reporting Act for the last completed 7 Financial Accounting periods must be kept.
The following statements or records are required to be kept:
(a) Financial Statements:
- Balance sheets;
- Profit and loss statements; and
- Any notes giving any information relating to the balance sheets or statements,
(b) Group financial records:
(a) Consolidated balance sheet; and
(b) Consolidated profit and loss statement.
The Financial Reporting Act governs the form of the financial statements.
We suggest that these records are kept in the "Company Reports" section of the Register.
We note that the Tax Administration Act 1994 also requires that financial and imputation records are retained for a period of 7 years. The required records include books of account which record payments, receipts, income or expenses, and any materials that describe the accounting system used in each income year. We suggest that this information should not form part of the Internal Company Register, but should be retained separately.
10. Accounting Records Required by Section 194
Accounting records for the current accounting period and for the last 7 completed accounting periods of the company must be kept.
Section 194 requires that:
- The Board of every company must keep accounting records which correctly record and explain the transactions of the company;
- The accounting records must:
- Enable the financial position of the company to be determined at any time with reasonable accuracy; and
- Be such that the directors can ensure that the financial statements comply with section 10 of the Financial Reporting Act, and
- The accounts must be capable of being readily and properly audited.
We suggest that these records are kept in the "Company Reports" section of the Register.
11. The Share Register
Every company is required to keep a register containing particulars of all the share issues, and any restrictions imposed on the transfer of shares.
The share register is divided up according to any classes of shares that exist, and must contain, in respect of each class:
- An alphabetical list of every person who is, or has within the last 10 years been, a shareholder, along with their current or last known addresses;
- The number of shares of that class held by each shareholder within the last 10 years; and
- The date of issue to, repurchase from, or transfer by each shareholder and the name of the transferee.
The share register is prima facie evidence of legal title to the shares concerned, and the company is entitled to treat the registered shareholder as the only person entitled to receive notices and exercise shareholder rights.
Each director is obliged to ensure that the register is kept properly and that transfers are recorded promptly.
The registers and records numbered 12 - 15 below comprise those records which we suggest should be kept as a matter of good company secretarial practice.
12. Register of Documents Executed by the Company
There is no formal requirement for the keeping of a register of documents executed by the company (being documents equivalent to Deeds), such as the former seal register. It is however recognised as good secretarial practice, and may in practice assist the directors in complying with their statutory record keeping obligations.
A company executes a document by complying with the procedure set out in section 180. Section 180 provides that a contract or other enforceable obligation may be entered into by the company as follows:
- An obligation which, if entered into by a natural person, would, by law, be required to be by deed, may be entered into on behalf of the company in writing signed under the name of the company by-
- Two directors of the company; or
- If there is only one director, by that director whose signature must be witnessed; or
- If the constitution of the company so provides, a director, or other person or class of persons whose signature or signatures must be witnessed; or
- One or more attorneys appointed by the company in accordance with section 181 of this Act.
- An obligation which, if entered into by a natural person, is by law, required to be in writing, may be entered into on behalf of the company in writing by a person acting under the company's express or implied authority.
- An obligation which, if entered into by a natural person, is not, by law, required to be in writing, may be entered into on behalf of the company in writing or orally by a person acting under the company's express or implied authority.
13. Companies Office Miscellaneous Forms and Correspondence
It is suggested that correspondence with the Companies Office be filed so that any director or officer can review compliance.
14. Annual Returns
The Board of Directors must ensure that an annual return is delivered to the Registrar in each calendar year apart from the year of registration.
The annual return is required to be in the prescribed form, or one approved by the Registrar, and be signed by a director, or authorised solicitor or accountant.
These documents should be kept in the "Company Reports" section of the Register.
15. Register of Charges
The PPSA has reformed the law relating to security interests in personal property. The PPSA has created a register called the Person Properties Securities Register ("PPSR"), which is an online electronic register.
A company does not need to maintain a register of charges however, a company may nevertheless find it very useful to retain a Register of Charges so that the Board:
- Have ready access to its Register for easy reference;
- Not be completely reliant on the online Register to access registration information relating to its security interests; and
- Have a convenient place for the company to store copies of its registered documents, which is now especially important because copies can no longer be obtained from the Companies Office.
Inspection of Company Records
Several categories of persons have the right to inspect the company documents. These are listed below along with the extent of that right.
Every director has the right to inspect the company's records in written form, without charge and at a reasonable time specified by the director.
2. The Public
Any person who serves written notice of intention to inspect in the prescribed form is entitled to view, under section 215:
- The Certificate of Incorporation;
- The Constitution;
- The Share Register;
- The full names and residential addresses of the directors; and
- The Registered Office and address for service of the company
3. The Shareholders
A Shareholder who serves notice of intention to inspect in the prescribed form is entitled to view, under section 216:
- Minutes of all meetings and resolutions of shareholders;
- Copies of all written communications to all Shareholders or to all holders of a class of shares during the preceding 10 years, including annual reports, financial statements, and group financial statements;
- Certificates given by directors; and
- The Interests Register.
In addition, a person has the right to inspect any document and its particulars in the register at the Companies Office. This is most conveniently done by carrying out an online search of the Companies Office (www.companies.govt.nz).
Subject to privacy restrictions set out in the PPSA, an individual is able to search for and view information about a security interest registered on the PPSR, by either the debtor name or by specific collateral details. You can search for and review the details of security interests in respect of personal property recorded on the PPSR at the PPSR website (www.ppsr.govt.nz).
You must be a registered user if you wish to use the searching and registration service in the PPSR.
The Board of Directors must ensure that the auditor has at all times access to the accounting records and other documents of the company.
This Background Paper by its nature cannot be comprehensive and cannot be relied on by any client as advice.
This Background Paper is provided to assist clients to identify legal issues on which they should seek legal advice.
The maintenance of Company Records and Registers is subject to change by new legislation, interpretation by the courts and by additional Best Practice.
PO Box 1305
Phone: +64 9 306 8000
DDI: +64 9 306 8002
Fax: +64 9 306 8009