Entity Housekeeping: Why Corporate Records Fail Diligence

Corporate records are boring right up until the moment a transaction depends on them, at which point their condition determines whether completion slips by a fortnight.

What fails, reliably

Unsigned or undated resolutions. Decisions taken and minuted but never executed. Common where board processes moved to email during a reorganisation and never moved back.

Share registers that do not reconcile. Transfers recorded in one place, allotments in another, options and warrants tracked in a spreadsheet that has diverged from both. On a fundraising or a sale, the cap table has to reconcile to the register, and frequently does not.

Missing consents. Shareholder or lender consents required for something the company has already done. These surface during diligence and require retrospective ratification, which requires cooperation from people whose interests may have changed.

Dormant entities. Subsidiaries nobody has looked at in five years, with unfiled accounts, undissolved status and occasionally a director who has left or died.

A maintenance routine

Quarterly, per entity: confirm directors and officers against the register and the public filing; confirm the share register reconciles to the cap table; confirm all resolutions since the last review are executed and filed; confirm statutory filings are current; and confirm the registered office and service address are correct.

This takes an hour per entity per quarter, and it is the cheapest insurance in corporate law.

The pre-transaction sweep

Six months before any anticipated transaction or financing, run a full sweep: reconstitute the minute book, ratify anything requiring ratification, dissolve entities that serve no purpose, and resolve any inconsistency between the register and public filings. Six months is enough time to obtain consents from people who are still reachable. Six weeks is not.

Why it is worth partner attention

Because it is exactly the category of problem that costs nothing to prevent, a great deal to fix under time pressure, and reflects on the quality of everything else the buyer has been shown.