A promising investment deal can fall apart for a reason that has little to do with the underlying business.
Sometimes, the problem is simply that the company’s official records have not caught up with reality.
When the Records Don’t Tell the Full Story
We recently saw a situation where a client had an investor ready to put money into the business.
The business was operating. The investment agreement was real. The commercial opportunity made sense.
Then the investor requested the company’s official records.
An ownership change had already been agreed and signed, but the corresponding changes had not yet been formally reflected in the company’s records.
The business was also still obtaining some regulatory approvals required for its activities.
From the company’s perspective, these were matters already being addressed.
From the investor’s perspective, however, the records available to him did not yet give a clear picture of who owned and controlled the company or whether the business had all the approvals it required.
The investor walked away.
The business itself was sound. The agreement was real. The records simply had not caught up yet.
And sometimes, that timing is enough to cost a business an opportunity.
It Is Not an Isolated Problem
Another business experienced a similar difficulty when applying for a bank facility intended for women-led businesses.
In practice, a woman was driving the business. However, the company’s official shareholding had not yet been updated to reflect the position required by the financing criteria.
The change was being addressed, but it had not been formally reflected when the bank assessed the application.
The business therefore missed the opportunity because, at that particular moment, the official records did not reflect the position on the ground.
These situations illustrate an important point about corporate compliance.
The gap matters.
Businesses change constantly.
Directors leave. Shares are transferred. New shareholders come in. Ownership arrangements are restructured. Companies expand into new activities and may become subject to additional regulatory requirements.
In many cases, the necessary changes are eventually made.
The problem is the period between the change happening and the official records catching up.
That gap may seem insignificant when the business is operating normally.
It can become very significant when an investor conducts due diligence, a bank assesses a financing application, a company applies for a tender, or the business enters into a major transaction.
What Should a Business Owner Check?
It is worth periodically reviewing whether your company’s official position still reflects its current reality.
Ask:
- Do the directors on record reflect the people currently managing the company?
- Do the recorded shareholdings reflect the current ownership position?
- Have recent changes in ownership or directorship been formally recorded?
- Are statutory filings up to date?
- Does the company have the licences and regulatory approvals required for its current activities?
- If an investor or bank requested the company’s records today, would those records accurately tell the story of the business?
If the answer to any of these questions is no, it is better to address the gap before a transaction depends on those records.
Corporate Records Are Part of Your Business Value
Corporate compliance is sometimes treated as an administrative exercise that can be dealt with later.
In reality, accurate corporate records can affect a company’s ability to raise investment, obtain financing, participate in tenders, bring in new partners and complete major transactions.
A company has its commercial reality and its official legal record.
The two should not be allowed to drift too far apart.
Your business may be ready for the next opportunity. Make sure your records are ready too.
If you are unsure whether your company’s official records accurately reflect its current position, a corporate records and compliance review can help identify and address gaps before they become obstacles to your next transaction.
Ann Nduta
Advocate | Corporate & Commercial Law
Ann & Steve Mbugua Law