Share certificates are evidence of the shareholder’s title to his shares. They are issued under the common seal of the company. They are generally required to be delivered on the transfer of the shares.
In the case of most public limited companies, shares have been dematerialised and are held through agents and trustees/nominees. The shares may be transferred by way of instruction to the nominee without the production of a share certificate.
Share certificates are presumptive evidence of the entitlement of the shareholder named, in favour of persons who rely on the certificate. They are not documents of title in the more extensive sense that applies to certain other class of documents, in particular, in the case of real property deeds.
It is an offence, falsely to impersonate any shareholder and thereby obtain or endeavour to obtain any share or interest therein, receive or endeavour to receive money or vote at any meeting. A person who does so is guilty of a category 2 offence.
The company need only deal with the registered member. It is not required to recognise any person as the holder of shares, other than the registered owner. Generally, it need only recognise the holder of an absolute right to the entire share. It need not recognise any equitable, contingent, future or partial interests in the share or fractional parts of the share, even if it has notice of them.
Companies may require the disclosure of beneficial interests in shares in certain circumstances.There are automatic obligations to disclose certain beneficial interests in shareholdings to the company in certain cases. The obligations apply to private companies and to a greater extent, to public limited companies.The above statutory position does not the statutory obligation to disclose nor does it preclude the company from requiring the member or a transferee to furnish information as to the beneficial ownership of shares, where this is lawfully required.
Splitting of Shareholding
Where a shareholder sells or otherwise disposes of less than his entire shareholding, he delivers his share certificates to the company secretary. The secretary issues a new certificate for the transferred shares to the new holder. A new certificate is also issued to the seller for any retained balance of the shareholding.
The company secretary should ensure that he receives the original share certificate. If the original certificate cannot be produced, proof of loss and an indemnity is commonly required. The indemnity is for the company’s potential liability to a third party where it wrongly registers a transfer on foot of the original certificate.
The 2014 legislation re-enacts the provisions in relation to share certificates and the certification of shares on the division of a shareholding. The maximum fees which the company may charge are increased to €10, from the very low sums which had been in force for many years under the earlier legislation.
The person named as shareholder need not necessarily be the beneficial or “real” owner. As with other assets, shares may be held in the name of a nominee. A nominee holding may arise where the holder has agreed to be a trustee. The nominee may be a trustee or investment vehicle which holds the shares, perhaps with a portfolio of other investments, in trust for one or more beneficiaries.
A trust may arise where another person provides the purchase money. The law may deem there to be a trust by the registered shareholder on behalf of the person who has provided the purchase money for them. The nominee must exercise his voting rights at the direction of the beneficial owner. He must pay dividends and other monies received to the beneficial owner.
The register of members does not allow entry of a notice of a trust or beneficial owner. There is a mechanism, by which the beneficial owner can give a notice to stop registrations without his consent. The trustee/ nominee may appear to the outside world to be full owner. The stop notice reduces the risk that the nominee owner may transfer the shares in breach of trust.
Forged Transfer and False Certificates
A forged share transfer is of no effect. If a company issues a certificate to an innocent party, who thereby becomes a member on foot of a forged transfer, the transfer may be set aside as invalid. A third-party who suffers a loss in reliance on a share certificate issued by the company may recover damages for loss suffered in consequence of his reliance on the false certificate. The certificate must have been issued by a person with authority to do so on behalf of the company.
The company will not be liable if the certificate itself was forged or has been issued by a third party without its authority. Liability may arise, only if the transferee relies on the certificate and is not aware of its false or forged origin.
Where shares are transferred to a purchaser and a certificate is issued by the company with its authority, a third party later takes them without notice will take title. The company is estopped from denying the contents of the certificate. The company having issued the certificate, may not challenge its validity against a third party who has relied on it.
The same principle applies to the contents of the certificate, such as where it states, when certain calls are in fact outstanding, that the shares are fully paid up. Where a third-party act to his detriment in reliance, the company may be estopped or liable in respect of a third party, who purchases the shares on the basis of the certificate.
Nominees/ Quoted Company I
Public limited companies have the option of allowing their shareholders to provide evidence of their title to shares, otherwise than by a share certificate, and to transfer their shares electronically, without a paper stock transfer form. Under EU derived law, electronic transfers must be effected through an electronic system the operator of which has been approved by the Minister (or by a body designated by the Minister) or by the appropriate authority in another Member State of the European Union.
Shares in public companies held as investments may be held through an intermediary either with or without being certificated or dematerialised. This arrangement is usually employed in international capital markets, in practice, by quoted companies. The actual mechanisms vary from place to place. The nature of the legal arrangements may be complex. There may be multiple tiers of intermediaries. Transfers take place at the level of the lowest level intermediary’s accounts.
Nominee/ Quoted Company II
CREST is an electronic system, which settles transfers of shares that are dealt with on certain exchanges/markets. CRESTCo Ltd, now known as Euroclear UK & Ireland Limited, was approved to operate the CREST system through which shares can be transferred electronically. Many Irish Stock Exchange companies transfer shares through the CREST system.
Under the CREST system, an instrument of transfer is not produced. The shares are transferred electronically by way of an entry in the CREST system. The registered member of the CREST scheme is the legal shareholder, but has The operator has no property interest in the shares.
The CREST register is the basis of title for CREST members. The issuer (company) is obliged to keep a register to reconcile with the CREST register. Registration is undertaken in the name of the CREST member who may be a direct member or a sponsored member. The legislation provides for the payment of stamp duty on electronic messages, which effect the transfer of shares.
Register of Members I
A company must keep a register of members. The register may be kept as a book, as part of single combined company register or in electronic form. It shall include
- the names and address of each shareholder;
- a statement of the shares held by each member;
- identify the relevant shares by number, if they have a number;
- set out the amount paid or agreed to be considered as paid for the share;
- the date on which the person was entered in the register;
- the date on the former member ceased to be a member.
Register of Members II
Shareholders are entitled to inspect the register of members without charge. It must be available at least two hours every day. A member or other person can require a copy extract from the register. The register can be closed for up to 30 days a year. An advertisement must be put in a newspaper circulating in the area. When the register is closed, the registration of transfers can be suspended.
The share register must be written up within 28 days after a person becomes or ceases to be a member. The entries required must be made within 28 days after the date of conclusion of the agreement with the company to become a member or, in the case of a subscriber of the constitution, within 28 days after the date of registration of the company.
The change in entry required must be made within 28 days of the date when the person concerned ceased to be a member. If the person ceased to be a member otherwise than as a result of action by the company, the change must be registered within 28 days after the date of production to the company of satisfactory evidence of the event whereby the person ceased to be a member.
Rectification of Register
The Companies Act allows for an application to the court for an order for rectification of the register of members. It may rectify the register, if the name of any person, is without sufficient cause, entered or omitted from the register of members. On application, the court may order or refuse rectification. The company is to be party to the proceedings.
Rectification is available where it can be shown that the refusal to register is invalid under the above criteria. Where the directors have absolute discretion to refuse, this is likely to be sufficient ground for refusal. Rectification can be used to determine other issues regarding the validity of the registration or non-registration of members
References and Sources
Companies Act 2014 (Irish Statute Book)
Companies Act 2014: An Annotation (2015) Conroy
Law of Companies 4th Ed. (2016) Ch.8 Courtney
Keane on Company Law 5th Ed. Ch.18 (2016) Hutchinson
Other Irish Sources
Tables of Origins & Destinations Companies Act 2014 (2016) Bloomsbury
Introduction to Irish Company Law 4th Ed. (2015) Callanan
Bloomsbury’s Guide to the Companies Act 2015 Courtney & Ors
Company Law in Ireland 2nd Ed. (2015) Thuillier
Pre-2014 Legislation Editions
Modern Irish Company Law 2nd Ed. (2001) Ellis
Cases & Materials Company Law 2nd Ed. (1998) Forde
Company Law 4th Ed. (2008) Forde & Kennedy
Corporations & Partnerships in Ireland (2010) Lynch-Fannon & Cuddihy
Companies Acts 1963-2012 (2012) MacCann & Courtney
Constitutional Rights of Companies (2007) O’Neill
Court Applications Under the Companies Act (2013) Samad
Company Law – Nutshell 3rd Ed. (2013) McConville
Questions & Answers on Company Law (2008) McGrath, N & Murphy
Make That Grade Irish Company Law 5th Ed. (2015) Murphy
Company Law BELR Series (2015) O’Mahony
Companies Act 2006 (UK) (Legilsation.gov.uk)
Statute books Blackstone’s statutes on company law (OUP)
Gower Principles of Modern Company Law 10th Ed. (2016) P. and S. Worthington
Company Law in Context 2nd Ed. (2012) D Kershaw
Company Law (9th Ed.) OUP (2016) J Lowry and A Dignam
Cases and Materials in Company law 11th Ed (2016) Sealy and Worthington
UK Practitioners Services
Tolley’s Company Law Handbook
Palmer’s Company Law