Nobody Ever Wrote Down Who Owns the Company

If your cap table lives in an accountant's spreadsheet and a folder of emailed subscription letters, a co-founder can credibly dispute it. Here is the three-hour audit that tells you whether you are exposed — before anyone falls out.

The register is the company, not the filings

Most founders assume Companies House is the record of who owns the business. It is not. Section 113 of the Companies Act 2006 requires every company to keep its own register of members, recording each member's name and address, the date they were registered and the date they ceased to be a member. That book — not the filing history — is the primary record.

Section 127 puts it plainly: the register of members is prima facie evidence of any matters directed by the Act to be entered in it. Nothing in the Act says that about a confirmation statement. Filings are a downstream report of what the register says. If the register was never written, the filings are a report of nothing.

And section 112 defines a member as a person whose name is entered in the register (subscribers to the memorandum being deemed members on incorporation). Read that again if you have ever allotted shares by email. Payment plus intention plus a board resolution is a very strong case for entitlement. It is not, on the face of the statute, the same thing as membership.

Failing to keep the register is a criminal offence. Section 113(7) and (8) make the company and every officer in default liable, on summary conviction, to a fine at level 5 on the standard scale plus a daily default fine. Since March 2015, level 5 fines in England and Wales have been unlimited, following section 85 of the Legal Aid, Sentencing and Punishment of Offenders Act 2012. In practice nobody prosecutes a founder for a scruffy register. The prosecution is not the risk. The risk is the co-founder.

What a dispute actually looks like

It rarely starts with a writ. It starts with a request.

Section 116 gives every member the right to inspect the register of members free of charge, and section 116(4) gives the company five working days to comply or apply to the court for an order that the request is not for a proper purpose. Five working days is not enough time to build a register from scratch. It is barely enough time to find the accountant.

So the sequence is predictable. A shareholder who feels squeezed asks to inspect. The company cannot produce a register, because there is not one. That single fact reframes everything that follows: the person asserting the cap table now has no presumptive evidence on their side, and the person disputing it has a free hit.

From there it goes one of two ways, and often both at once. A section 125 application to rectify the register. And a section 994 unfair prejudice petition, because a founder who can plausibly say "I was never properly recorded and then diluted" has the raw material for one.

Section 125 is worth understanding properly, because it is broader than its name suggests. Where a name is entered in or omitted from the register without sufficient cause, the person aggrieved, any member, or the company may apply for rectification. Under section 125(2) the court may order rectification and payment by the company of damages sustained by any party aggrieved. Under section 125(3) the court may decide any question relating to the title of any party to the application, and generally any question necessary or expedient for rectification. Under section 125(4) it directs notice of the rectification to the registrar.

That is a full ownership trial with a tidy statutory hook. The court will look at subscription letters, bank statements, board minutes, tax returns, EMI paperwork, WhatsApp messages and what everybody told HMRC. It will construct the register you should have kept. It will do so at commercial litigation rates, over a year or more, while your company is unfinanceable and unsellable.

The trap that catches the person who was promised shares

There is a second trap, running the other way, and founders on both sides get it wrong.

In Nilon Ltd v Royal Westminster Investments SA [2015] UKPC 2, the Privy Council held that a rectification claim was not available to claimants who had been promised shares under an agreement with another individual and had never been entered on the register. Their complaint was that a personal promise had not been honoured — a contract claim against the promisor — not that the company's register was wrong as against the company. Rectification, the Board held, is not a route to enforce a personal obligation to procure the issue of shares.

So if your co-founder's claim is "you told me I'd get 10%", their route may be a breach of contract claim, not a register claim. And if your claim is "I paid for these shares and the company allotted them to me", you want the register point, because it is faster and it binds the company. Which side of that line you fall on is usually decided by documents created years earlier by people who were not thinking about litigation.

The three-hour audit

You can find out where you stand in an afternoon. Do it before anyone is angry, because after that it becomes disclosure.

Hour one — find the book, or accept there isn't one. Ask the company secretary, the accountant and the incorporation agent for the register of members. Not the cap table. Not the shareholders page on Companies House. The statutory register. If three people send you three different spreadsheets, you have your answer. Note that since the Economic Crime and Corporate Transparency Act 2023 reforms, private companies can no longer elect to keep member information on the central register at Companies House instead of their own — check whether an old election is why nobody thinks they hold the book.

Hour two — reconcile every event. List every allotment and every transfer since incorporation. For each allotment you want: directors' authority to allot (sections 549–551), pre-emption rights disapplied or waived where required (sections 561 and 570–571), a board resolution, the SH01 filed within one month under section 555, entry in the register within two months under section 554, and a share certificate ready within two months under section 769. For each transfer: a signed stock transfer form, board approval, and stamping. HMRC charges Stamp Duty at 0.5% of the consideration, rounded up to the nearest £5, with no charge where the consideration is £1,000 or less and the appropriate certificate is completed. An unstamped transfer above that threshold should not have been registered — and often was.

Hour three — test the divergences. Compare your reconciliation against the confirmation statements. Section 856A requires the confirmation statement to state, for a company with share capital, the full name of every person who was a member, the shares held and details of transfers and dates. If your reconstructed position and the filed history disagree, you have located exactly where the fight will be. Then check the PSC register, and check whether employment-related securities were reported to HMRC — the ERS annual return is due by 6 July following the end of the tax year, with an automatic £100 penalty for lateness, and a missing ERS return is often the first outsider-visible sign that share issues were never properly papered.

If all three hours come back clean, write the register up properly and diarise it. If they do not, you now know before your co-founder does, which is the entire point.

Rebuilding it without making it worse

A reconstructed register is not a forgery and should never look like one. It should be built from primary documents, dated as at the date of reconstruction, with a contemporaneous note explaining what was found, what was inferred and what could not be established. Where two shareholders disagree about an entry, record the disagreement rather than resolving it unilaterally in the book.

Where entitlement is genuinely uncertain, the honest options are a deed of ratification signed by everyone with a possible interest, or a consent order. Both are cheap compared with section 125. Both require every affected person to be willing to sign, which is why the window closes the moment relations sour.

One further point for family businesses: section 126 provides that no notice of any trust may be entered on the register of a company registered in England and Wales. Shares held for children, or by a parent "for the family", sit on the register in the legal owner's name. If the side agreement was never written down either, you have two undocumented ownership questions stacked on top of each other.

Where a specialist is needed

Several parts of this are not for a general counsel function to carry alone, and Dinmore Bell does not pretend otherwise.

A section 125 application, a section 994 petition and any contested question of title are litigation. Dinmore Bell instructs and manages litigation counsel and solicitors, holds the budget, runs the document reconstruction that keeps their hours down, and stays accountable for the commercial outcome — but the conduct of the claim sits with the regulated firm.

Anything touching valuation, EMI or growth-share tax treatment, unapproved option charges, stamp duty adjudication or ERS corrections is a filing position and belongs with tax advisers. Dinmore Bell scopes the instruction, coordinates it against the corporate work and makes sure the tax answer and the legal answer describe the same set of facts. It does not give the tax advice.

What this costs, honestly

Keeping a register properly is a few hours a year of administration: minute the resolution, update the book, file the SH01, issue the certificate, stamp the transfer. A decade of that is a rounding error.

A contested ownership dispute is a High Court trial about who owns your company, run in public, while you cannot raise, cannot sell and cannot recruit against an option pool nobody trusts. Founders do not lose control of their businesses because the law is complicated. They lose it because for six years nobody wrote anything down, and then somebody wanted out.