Legal stumbling blocks in the transfer of shares - Transfer of registered shares
The majority of Swiss stock corporations have structured their shares as registered shares. Registered shares can be issued in certificated or uncertificated form, whereby the correct procedure for a legally valid transfer of registered shares differs depending on the type of registered share.
Many company managers are unaware of this fact, which means that shares are regularly transferred incorrectly in practice. However, incorrect share transfers usually mean that ownership of the shares is not transferred to the acquiring person. If company acquisitions and sales are planned in the form of so-called "share deals", in which the company shares form the object of the purchase, or the purchase of company shares by investors is intended, it is therefore extremely important to ensure that the share transfer chain is free of errors.
This article explains what is particularly important for ensuring the error-free transfer of registered shares.
Transfer of certificated registered shares
If securities have been issued for registered shares, these are referred to as "certificated registered shares". A single registered share can be securitized in a share certificate, whereas several registered shares can be securitized together in a share certificate.
Securitized registered shares are legally transferred if the security is endorsed on the basis of a so-called obligation transaction (e.g. purchase agreement or gift agreement) and then transferred. The endorsement is a handwritten declaration of assignment, which is affixed to the back of the share title or certificate by the transferring shareholder. The endorsement contains the name of the acquiring person and the signature of the selling person. However, so-called "blank endorsements" are also permitted, in which the endorsement only contains the signature of the selling person, without any indication of the acquiring person.
If the articles of association do not expressly exclude this, securitized registered shares can alternatively also be transferred by transferring the security to the acquiring person on the basis of a commitment transaction (e.g. a purchase or gift agreement) and a separate written declaration of assignment (so-called assignment). While the parties agree in the obligatory transaction which (future) performance they undertake to provide (e.g. the sale of the shares), the declaration of assignment regulates the execution of the obligatory transaction. In other words, the declaration of assignment is a written declaration regarding the transfer of the shares from the seller to the purchaser and could read as follows: "A hereby assigns share certificate no. 1 relating to share certificates nos. 1-20 to B".
Transfer of uncertificated registered shares
Registered shares that are not issued as securities are considered "uncertificated registered shares" and "uncertificated securities". The transfer of uncertificated registered shares is simpler than that of certificated registered shares, as no transfer of the security is required. The transfer of uncertificated registered shares only requires a commitment transaction and a written declaration of assignment.
Transfer of registered shares with restricted transferability or partial transferability
Regardless of whether registered shares are certificated or uncertificated, the articles of association of a public limited company may stipulate that registered shares may only be transferred with the consent of the Board of Directors. These cases are referred to as "registered shares with restricted transferability".
Registered shares with partial delivery can also only be transferred after approval by the Board of Directors. The reason for this is that the shareholder is obliged to make subsequent redemption in the case of partly-delivered shares, and this obligation is also transferred to the purchaser if the shares are transferred.
In order for registered shares with restricted transferability and registered shares with partial transferability to be validly transferred, the explicit approval of the Board of Directors in the form of a Board resolution is therefore generally required. In the absence of such a resolution, ownership of the shares is not transferred to the acquiring person, even if all other requirements for a legally valid share transfer are met.
Share register
The Board of Directors must record all owners of company shares in the share register. By law, at least the name and address of the owner of the shares must be entered in the share register. In practice, however, it is advisable to include further information in the share register, such as the respective share capital and its breakdown, the names of all shareholders, including their share numbers and par value, as well as the voting rights of the individual shareholders. The share register should also show all share transfers so that past share transfers can be traced. For the company, a shareholder is anyone who is entered in the share register. However, the correct updating of the share register cannot remedy past incorrect share transfers.
Conclusion
A correct transfer of shares is particularly important, as even small errors can result in the ownership of the shares not being legally transferred. Correcting mistakes made can also quickly become complicated and costly, especially if some time has passed since the first transfer error. The more time passes, the greater the likelihood that people have died or moved away in the meantime, or that several other incorrect share transfers and corporate actions have already been carried out based on an incorrect share transfer. If, for example, securities have been lost or destroyed, the relevant share titles or certificates must be declared invalid in court proceedings, incorrect share transfers must be made up for in a formally valid manner and, if individual shareholders do not cooperate in the correction of past incorrect transfers, a so-called squeeze-out merger could even become necessary. We therefore strongly recommend that you check the legal validity of past share transfers as soon as possible and start correcting any past transfer errors at an early stage.
The most important facts in brief
The Board of Directors should be able to answer these questions:
Were the shares securitized? If so, were share certificates or share certificates issued?
Is the company's share capital fully paid up?
Are the shares restricted?
Steps required for the correct transfer of certificated registered shares:
Conclusion of a contract as an obligatory transaction (e.g. gift or purchase agreement)
Endorsement or written declaration of assignment
Transfer of the shares or share certificates to the acquiring person
In the case of registered shares with restricted transferability or registered shares with partial transferability, the transfer of shares must also be approved by the Board of Directors
Entry of the persons acquiring the shares in the share register
Steps required for the correct transfer of uncertificated registered shares:
Conclusion of a contract as an obligatory transaction (e.g. gift or purchase agreement)
Written declaration of assignment
In the case of registered shares with restricted transferability or registered shares with partial transferability, the transfer of shares must also be approved by the Board of Directors
Entry of the acquiring persons in the share register
Vivien Keiser and Balthasar Wicki will be happy to answer any questions you may have regarding planned or past share transfers and the preparation of the necessary documents.