Registration and transfer of un/certificated shares Flashcards
Elaborate more on the registration of securities
Every profit company must maintain a securities register or its equivalent in the prescribed form. It must be in an official language of South Africa, and must depict the total number of securities that are uncertified, as well as those that are certified (with name, address and number all detailed). This information must be kept for seven years after the person last held securities of the company. Classes of shares must be distinguished by a numbering system. Any person may inspect these documents at a cost.
What must a security certificate contain?
A certificate evidencing certificated securities must state the:
i) name of the issuing company
ii) name of the person to whom the securities were issued
iii) number and class of the shares
iv) any restriction on the transfer of the securities
Incompliance does not invalidate the shares certificate. It has to be signed by two persons authorised by the company’s board.
What is the issue and allotment of securities?
A contract to acquire securities is not a purchase, but rather a subscription or allocation. An application for securities is an offer. The allotment is the acceptance of the offer and the contract is concluded when the acceptance comes to the notice of the subscriber, or when the acceptance is posted.
What is the transfer of securities and how may it be affected?
Shares are movable, and so a purchaser of securities through a valid agreement may demand that the company registers the securities in their name. The seller cedes their rights attached to the securities. The certificate is not required for delivery, but it serves as evidence of such. The new shareholder only has shareholder rights when their name is registered in the company’s register.
The MOI may/must restrict the transferability of shares in the company. This is to allow a measure of control over who the shareholders are. Common restrictions include a right of pre-emption. Where a shareholder sells to a third party in lieu of such a right, a contract is valid but the purported cession of the rights is invalid. One must take up all of the shares offered. Another way is security by cession in securitatem debiti. The shareholder can pledge their rights or they can cede them out-and-out on the condition that they will be ceded back upon repayment of the debt.
What are nominee holdings?
A person may hold securities in their name (as an agent) on behalf of someone else (the principal). This is the beneficial owner of the securities.
What is a beneficial interest?
Right to receive or participate in any distribution in respect of the company’s securities, exercise rights or dispose of the securities.
Why must nominees disclose?
The lack of transparency is used to cover up insider trading. Therefore, nominees are required to disclose for whom they are holding the shares. A person who has a beneficial interest includes the principal, their immediate relatives and a holding company.
What are uncertificated shares?
These are securities that are not evidenced by a certificate or written instrument and that are transferable by entry without a written instrument. STRATE is an electronic system designed to handle uncertificated shares.
How are uncertificated shares registered?
A company must keep an uncertificated securities register detailing names, addresses and number of shares issued. There is no prescribed holding and transfer model. Holders of shares must be provided with a statement at prescribed interval setting out the number and identity of the uncertificated securities held on that person’s behalf.
How are uncertificated shares transferred?
This may only be affected by a participant or a CSD. This must be done on receipt of instruction to do so, or by an order of court. The debiting and crediting of two accounts must take place. Transfer of ownership happens regardless of fraud, illegality or insolvency. However, the transferee having knowledge of such may not rely on this provision.
What is substitution?
Previously certificated shares may be rematerialised. All the relevant transfer of information between the registries must take place.
What is the position of liability relating to uncertificated shares?
A person who interferes with or alters information in a securities register is liable to those persons who have suffered direct loss or damage arising out of that action. Certain people may be indemnified from such liability, such as the company or the CSD required to effect the transfer.
Must a person declare a beneficial interest in uncertificated shares?
A person may have multiple points of interest in an uncertificated share i.e. if it is in their own name, held on their behalf by a nominee etc. Nonetheless, any holder must disclose details in relation to the identity of the person on whose behalf it holds the securities as well as the number and class of securities held for each person.
