Shares change hands constantly. Section 106 of the Companies Act 1997 fixes the moment at which entitlement is measured.
Section 106(1) — distributions and other benefits
(a) entitled to receive distributions; or
(b) entitled to exercise pre-emptive rights under section 45; or
(c) entitled to exercise any other right or receive any other benefit under this Act or the constitution,
are —
(d) where the board fixes a date for the purpose, those whose names are registered in the share register on that date; and
(e) where the board does not fix a date, those whose names are registered on the day on which the board passes the resolution concerned.
A date fixed under subsection (1) shall not precede by more than one month the date on which the proposed action will be taken.
Without one, entitlement is measured on the day the board passes the resolution — which may be inconvenient where a dividend is declared now and paid later, or where a rights offer will run for weeks. Fixing a date gives certainty to the company, the registry and the market.
The one-month cap in subsection (2) stops a board fixing an artificially early date to exclude recent transferees. Paragraph (c) is deliberately wide: any other right or benefit under the Act or the constitution, which takes in participation in a scrip dividend under section 52, a discount scheme under section 53, and a buy-back offer under section 57.
Sections 106(3) and (4) — notice of meetings
(a) where the board fixes a date, those registered on that date; and
(b) where it does not, those registered at the close of business on the day immediately preceding the day on which the notice is given.
(a) within one month of the date on which the meeting is to be held; and
(b) at least 14 days before the date on which the meeting is to be held.
Subsection (4) creates a window: no earlier than one month before the meeting, and no later than 14 days before it. A date outside that window does not comply, and the notice may be challenged — with the risk that resolutions passed at the meeting are attacked by injunction under section 142 or as unfairly prejudicial under section 152.
Section 106 at a glance
| Purpose | If the board fixes a date | If it does not | Limits |
|---|---|---|---|
| Distributions, pre-emptive rights, other rights or benefits | Register on that date | Register on the day the board passes the resolution | Not more than one month before the action |
| Notice of a meeting | Register on that date | Register at the close of business on the day before notice is given | Within one month of the meeting and at least 14 days before it |
Everything turns on the register
Section 106 works because the share register is the definitive record. Under section 78 a shareholder is the person entered in the register; under section 69(1) the entry is prima facie evidence of legal title; and under section 69(2) the company may treat the registered holder as the only person entitled to vote, receive notices, receive distributions and exercise other rights.
- A buyer who is not yet registered on the record date gets nothing — no dividend, no notice, no vote. Under section 40(2), a share is transferred by entry on the register, and a transfer form in a drawer transfers nothing.
- A seller who is still registered on the record date receives the dividend and the notice, and holds them for the buyer under the contract of sale.
- Where a company is slow to register transfers, both parties are prejudiced — which is why section 70 makes it the personal duty of each director to see that transfers are promptly entered, and why section 71 allows compensation against a director.
Until a personal representative or trustee is registered under section 73 or 74, the register still shows the deceased or bankrupt as holder. Section 106 will therefore fix entitlement by reference to that name, and section 69(2) permits the company to treat that registered holder as the person entitled. Prompt registration matters where a vote is coming.
Practical points for boards
- Fix a record date deliberately for every dividend, rights issue and meeting — and record it in the minutes.
- Check the two limits: one month for distributions and rights; one month and 14 days for meeting notices.
- Close the register work first. Enter all outstanding transfers before the record date, so the register is accurate on the day that counts.
- Announce the record date with the resolution, so buyers and sellers can price the position.
- Watch the interaction with a buy-out. Under section 93(3), shares are deemed purchased on receipt of the price notice — which may fall either side of a record date.
- Do not use the record date tactically. Fixing dates to disenfranchise a shareholder invites a section 152 application and, for the directors, a breach of section 112.
Sources
- Companies Act 1997 — ss 40, 45, 50–53, 57, 69–74, 78, 93, 101–106, 112, 142, 152
Before relying on anything here, read the current text of the Companies Act 1997 and check for later amendments. If a decision matters to you, get advice — start with the Office of the Public Solicitor, or find a firm in the law firms directory.