The art of transferring uncertificated securities: Tips for a smooth process
The correct transfer of shares is of crucial importance, as the acquirer may not become the owner of the shares in the event of transfer errors and may therefore no longer be able to resell them legally.
Introduction
Shares can be issued as certificates, uncertificated securities, intermediated securities or registered securities. At present, the shares of most newly founded stock corporations in Switzerland are issued as uncertificated securities. However, older public limited companies still have considerable stocks of physical share certificates. We have dealt with the pitfalls of transferring share certificates in an earlier blog post. The following comments therefore relate exclusively to the transfer of uncertificated securities. Furthermore, in this blog we do not go into the effects of shares that are not fully paid up or transfer restrictions (so-called transfer restrictions).
Transfer of uncertificated shares (uncertificated securities)
The transfer of uncertificated securities takes place in two steps:
- Firstly, the parties conclude a contract, for example a purchase agreement. Although the law accepts an oral contract, it is advisable to draw up the contract in writing for reasons of proof.
- The seller (assignor) draws up a declaration of assignment, also known as an assignment. This is a document with which he transfers the shares to the acquirer (assignee) and adds his signature. The written form of the assignment is mandatory, otherwise it is not valid. In practice, this means that the seller must sign the declaration of assignment either by hand on paper or electronically with a qualified electronic signature. Other forms of signature are not legally valid. The seller must have the power of disposal over the uncertificated securities to be transferred and any other formal requirements (e.g. consent of the company in the case of registered shares with restricted transferability) must be observed.
The shareholder's entitlement to the share thus results from a complete chain of written declarations of assignment, which must be traceable back to the first subscriber of the share (evident from the public deed of incorporation or capital increase). If the seller lacks the power of disposal, the purchaser's good faith is not protected.
Stumbling blocks in the transfer of shares
In practice, there are often gaps in the transfer chain so that the acquirer does not become the owner of the shares and cannot legally resell them.
In practice, when uncertificated shares are transferred, often only the obligation transaction is concluded, but the disposal transaction, i.e. the assignment, is also necessary for the transfer of ownership. In concrete terms, this means that purchase agreements often only stipulate the seller's obligation to transfer the shares to the buyer, but the actual written declaration of assignment is missing. This means that the seller is still obliged to perform, but ownership of the shares remains with the seller and is not transferred to the buyer.
Conclusion
With a view to the subsequent resale, the purchaser of shares is well advised to ensure that there is an unbroken chain of transfer. If there is no unbroken chain of transfer, the defective share transfers must be formally rectified correctly. If necessary, it may be necessary to go back to the founding shareholders.
In the case of shares issued as uncertificated securities, Konsento supports the boards of directors of public limited companies by providing a technical reminder of the correct form of transfer. In the case of the purchase and sale of uncertificated securities, a reference to the necessary declaration of assignment appears. In addition, a template for a declaration of assignment is provided directly in the transaction itself.
The Konsento electronic share register is free of charge for up to 150 shareholders. We are happy to provide companies with more than 150 shareholders with a customised offer. Register now on Konsento to keep your share register legally compliant and to record future transactions in a legally valid manner.
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