Services / Cross-border transactions and investment
Due diligence starts with two statutory books
Due diligence is often understood as asking for as many documents as possible. The workable starting point is narrower: two books the Code requires every company to keep, and the legal consequence attaching to one of them.
The share register
Section 1139 of the Civil and Commercial Code requires the share register, beginning from the date the company was registered, to be kept at the company's registered office. It must be open to all shareholders for inspection during business hours without charge, though the directors may set reasonable hours provided they are not less than two hours a day.
The annual list filed with the registrar
The second paragraph of section 1139 makes it the directors' duty to send the registrar a copy of the list of those still shareholders at the time of the meeting, together with those who ceased to be shareholders since the last ordinary meeting, at least once a year and not later than fourteen days after that meeting. That filing is therefore an external source against which what the company shows a buyer can be checked.
The minute books
Section 1207 requires the directors to have the minutes and all resolutions of shareholders' meetings and of directors' meetings correctly recorded in books, kept at the company's registered office. Its final paragraph provides that any shareholder may inspect those documents at any time during business hours.
The presumption that attaches to signed minutes
What makes the minute books weigh more than ordinary documents is in section 1207 itself: such a record, once signed by the chairman of the meeting at which the resolution was passed or which conducted the business, or by the chairman of the following meeting, is presumed to be correct evidence of what it records, and the resolutions and proceedings recorded are presumed to have been duly carried out.
What an absence tells you
Since the Code requires both books, requires them to be at the registered office and requires them to be open to inspection, a company unable to produce one is itself a fact rather than merely an inconvenience. And because section 1207 ties its presumption to the chairman's signature, checking whether each set of minutes carries that signature yields more than reading the contents alone.
PREPARE
What to bring
- The share register from the date of incorporation
- The minute books of shareholders' and directors' meetings
- The annual shareholder lists filed with the registrar
- Every share transfer instrument ever executed
- The articles in force and the history of amendments
QUESTIONS
Questions this raises
I am not yet a shareholder. Can I ask to see the books?
The inspection rights in sections 1139 and 1207 belong to shareholders, so someone still considering a purchase does not hold them by operation of law. Access during due diligence therefore rests mainly on agreement with the seller, which is why the scope of documents and the timetable are worth fixing in the letter of intent at the outset.
The minutes are unsigned by any chairman.
The presumption in section 1207 attaches to the signature of the chairman of that meeting or of the following one. Minutes without a signature therefore do not draw on it, which bears on proving that a resolution relied upon was duly passed. The point belongs in the due diligence report rather than being passed over because the contents read unremarkably.
LAW
The legislation
- Civil and Commercial Code, section 1139
- Civil and Commercial Code, section 1207
ENQUIRIES
