define assignment of shares

Stock Assignment: Transferring Ownership Rights with Stock Power

1. introduction to stock assignment and stock power, 2. understanding ownership rights in stock, 3. the role of stock power in transferring ownership, 4. ways to obtain stock power, 5. filling out a stock power form, 6. executing a stock assignment, 7. legal considerations in stock assignment, 8. common mistakes to avoid in stock assignment, 9. conclusion and final thoughts on stock power and stock assignment.

Stock Assignment and Stock Power are two terms that are commonly used in the world of stocks and investments. They are often used interchangeably, but they refer to two different things. Stock assignment is the process of transferring ownership rights of a stock from one party to another, while Stock Power is a legal document that authorizes the transfer of ownership rights from one party to another. In this section, we will discuss in detail what Stock Assignment and Stock Power are, how they work, and why they are important.

1. What is Stock Assignment?

Stock Assignment refers to the transfer of ownership rights of a stock from one party to another. This process is typically used when an investor wants to sell their shares to someone else. The seller must sign an Assignment of Stock Certificate form, which is a legal document that transfers ownership rights to the buyer . The buyer must then present the form to the company's transfer agent, who will update the company's records to reflect the change in ownership.

2. What is Stock Power?

Stock Power is a legal document that authorizes the transfer of ownership rights from one party to another. It is typically used when an investor wants to transfer their shares to a family member or a trust. The seller must sign a stock Power form , which is a legal document that authorizes the transfer of ownership rights to the buyer. The buyer must then present the form to the company's transfer agent, who will update the company's records to reflect the change in ownership.

3. What are the differences between Stock Assignment and Stock Power?

The main difference between Stock Assignment and Stock Power is the purpose for which they are used. Stock Assignment is used when an investor wants to sell their shares to someone else, while Stock Power is used when an investor wants to transfer their shares to a family member or a trust. Another difference is the legal document that is used. Stock Assignment uses an Assignment of Stock Certificate form, while Stock Power uses a Stock Power form.

4. What are the benefits of Stock Assignment and Stock Power?

The main benefit of Stock Assignment and Stock Power is that they provide a legal framework for transferring ownership rights of a stock from one party to another. This ensures that the transfer is done legally and that the new owner has full ownership rights to the stock. It also ensures that the company's records are updated to reflect the change in ownership, which is important for tax purposes.

5. What are the risks of Stock Assignment and Stock Power?

The main risk of Stock Assignment and Stock Power is that they can be used for fraudulent purposes. For example, someone could forge an Assignment of Stock Certificate or a Stock Power form to transfer ownership rights of a stock to themselves. To mitigate this risk, it is important to use a reputable transfer agent and to verify the authenticity of the legal documents.

6. Which option is better: Stock Assignment or Stock Power?

The choice between Stock Assignment and Stock Power depends on the purpose for which they are being used. If an investor wants to sell their shares to someone else, then Stock Assignment is the better option. If an investor wants to transfer their shares to a family member or a trust, then Stock Power is the better option. It is important to use the correct legal document and to ensure that the transfer is done legally to avoid any potential risks .

Introduction to Stock Assignment and Stock Power - Stock Assignment: Transferring Ownership Rights with Stock Power

When it comes to owning stock, it's important to understand the concept of ownership rights. Ownership rights refer to the various privileges that come with owning stock, such as voting rights and the ability to receive dividends. Understanding these rights is crucial for investors who want to make informed decisions about their investments. In this section, we'll take a closer look at ownership rights in stock and what they mean for investors.

1. Voting Rights

One of the most important ownership rights in stock is the right to vote. When you own stock in a company, you are entitled to vote on certain matters that affect the company. These matters can include electing members to the board of directors, approving mergers or acquisitions, and making changes to the company's bylaws. The number of votes you have is typically based on the number of shares you own. For example, if a company has 1,000 shares outstanding and you own 100 shares, you would have 10% of the voting power.

2. Dividend Rights

Another ownership right in stock is the right to receive dividends. Dividends are payments made by a company to its shareholders, usually on a quarterly basis. The amount of the dividend is typically based on the company's profits and can vary from year to year. If you own stock in a company that pays dividends, you are entitled to a portion of those payments based on the number of shares you own.

3. Liquidation Rights

If a company goes bankrupt or is liquidated, shareholders have the right to a portion of the company's assets. This is known as liquidation rights. However, in most cases, shareholders are the last in line to receive payment after creditors and other stakeholders have been paid.

4. Preemptive Rights

Preemptive rights refer to the right of existing shareholders to purchase additional shares in a company before they are offered to the public. This allows shareholders to maintain their ownership percentage in the company and prevent dilution of their shares.

5. Transferability of Ownership Rights

Ownership rights in stock are transferable, meaning you can sell your shares to another investor. When you sell your shares, you transfer your ownership rights to the buyer. However, it's important to note that some ownership rights, such as voting rights, may be restricted for a period of time after the sale.

Understanding ownership rights in stock is crucial for investors who want to make informed decisions about their investments. Voting rights, dividend rights, liquidation rights, preemptive rights, and transferability of ownership rights are all important concepts to understand. When considering investing in a company, it's important to evaluate these ownership rights and consider the potential risks and rewards .

Understanding Ownership Rights in Stock - Stock Assignment: Transferring Ownership Rights with Stock Power

Stock power plays a crucial role in transferring ownership of stocks from one person to another. Without it, the process would be more complicated and time-consuming. In this section, we will explore the different aspects of stock power and its importance in transferring ownership.

1. Definition of Stock Power: A stock power is a legal document that authorizes the transfer of ownership of a stock from the owner (the "grantor") to another person or entity (the "grantee"). It is also known as a stock assignment or a stock power form. The stock power form contains the details of the stock being transferred, the name of the grantee, and the signature of the grantor.

2. importance of Stock power : Stock power is important because it provides proof of ownership transfer and protects both the grantor and the grantee. With a stock power, the grantor can transfer ownership of the stock without physically delivering the stock certificate. This avoids the risk of loss or theft of the stock certificate. On the other hand, the grantee can prove ownership of the stock through the stock power, which is crucial for selling the stock or receiving dividends.

3. Types of stock Power forms : There are two types of stock power forms: "blank" and "special." A blank stock power form is unsigned and does not specify the name of the grantee. It is commonly used for transferring ownership of stocks to a brokerage firm or for depositing the stocks into a trust account. A special stock power form is signed and specifies the name of the grantee. It is used for transferring ownership of stocks to a specific person or entity.

4. How to Fill Out a Stock Power Form: Filling out a stock power form is a simple process. The grantor needs to sign the form and specify the name of the grantee. The grantee also needs to sign the form to acknowledge receipt of the stock. The completed form should be sent to the transfer agent or the brokerage firm that handles the stock.

5. Alternatives to Stock Power: While stock power is the most common way to transfer ownership of stocks, there are alternatives. One option is to use a trust. The grantor can transfer the stock to a trust and name the grantee as the beneficiary. The grantee will receive the stock upon the grantor's death. Another option is to use a will. The grantor can specify in the will that the stock should be transferred to the grantee upon the grantor's death.

Stock power plays an important role in transferring ownership of stocks. It provides proof of ownership transfer and protects both the grantor and the grantee. There are different types of stock power forms, and filling them out is a simple process. While there are alternatives to stock power, it is the most common way to transfer ownership of stocks.

The Role of Stock Power in Transferring Ownership - Stock Assignment: Transferring Ownership Rights with Stock Power

When it comes to transferring ownership rights with stock power , there are various ways to obtain this crucial document. Whether you are a shareholder looking to transfer your ownership or a company seeking to issue new shares, understanding the different methods available can help streamline the process and ensure a smooth transition of ownership. In this section, we will explore some common ways to obtain stock power, providing insights from different perspectives and comparing several options to determine the best approach.

1. Directly from the Transfer Agent:

One of the most straightforward ways to obtain stock power is by contacting the transfer agent directly. The transfer agent is responsible for maintaining the shareholder records and managing the transfer of ownership. They can provide you with the necessary stock power forms, which typically need to be completed, signed, and notarized before submitting them back to the transfer agent. This method ensures that the required documentation is obtained directly from the authorized party, reducing the risk of errors or fraudulent activity.

2. Online Stock Power Forms:

In today's digital era, many companies offer the convenience of online stock power forms. Shareholders can access these forms through the company's website or a designated platform. Online forms often include step-by-step instructions and may even provide a notary service. This option can save time and effort, as there is no need for physical paperwork or mailing documents. However, it is essential to ensure the online platform is secure and trustworthy, protecting sensitive information from potential cyber threats.

3. Brokerage Firms:

If you hold your shares through a brokerage account, you can obtain stock power through your broker. Brokerage firms typically have their own procedures for transferring ownership and may require specific forms or documentation. Contact your broker to inquire about the process and any associated fees. While this option may be convenient for shareholders who already have a brokerage account, it may not be the best choice for those who prefer a direct relationship with the transfer agent or have shares held outside of a brokerage account.

4. In-person at a Financial Institution:

Some shareholders may prefer to obtain stock power in person, either at their bank or another financial institution . This option allows for face-to-face interaction and immediate access to the necessary forms. However, not all financial institutions offer this service, so it is important to check beforehand. Additionally, consider any associated fees and potential time constraints when opting for this method.

Comparing the different ways to obtain stock power, the best option ultimately depends on your specific circumstances and preferences. If you have a direct relationship with the transfer agent, obtaining stock power directly from them ensures accuracy and eliminates potential intermediaries. On the other hand, online stock power forms can offer convenience and ease of use, particularly for tech-savvy individuals. Brokerage firms provide a viable option for those already utilizing their services, while in-person visits to financial institutions may be preferred by individuals seeking a personal touch.

Understanding the various ways to obtain stock power is crucial for shareholders and companies alike. By exploring the options available and considering the specific requirements and preferences, individuals can choose the most suitable method to transfer ownership rights efficiently and securely.

Ways to Obtain Stock Power - Stock Assignment: Transferring Ownership Rights with Stock Power

When transferring ownership rights with a stock power, there are several important steps to follow. Filling out the stock power form is one of the most crucial steps in this process, as it legally transfers ownership of the stock from one party to another. In this section, we will explore the process of filling out a stock power form, including what information is required, how to properly fill it out, and what to do after it is completed.

1. Understanding the Stock Power Form

A stock power form is a legal document that is used to transfer ownership of stock from one party to another. It is typically used in situations where the actual stock certificate is not available, such as when the stock is held in a brokerage account. The stock power form contains important information about the stock, such as the name of the company, the number of shares being transferred, and the name of the current owner.

2. Gathering the Required Information

Before filling out the stock power form, it is important to gather all of the necessary information. This may include the name of the company that issued the stock, the number of shares being transferred, and the name and contact information of the current owner. It is also important to have the recipient's information on hand, including their name and contact information.

3. Filling Out the Form

When filling out the stock power form, it is important to be accurate and thorough. The form will typically ask for the name and address of the current owner, as well as the name and address of the recipient. It may also ask for the number of shares being transferred, the date of the transfer, and other relevant information. It is important to double-check all of the information before submitting the form.

4. Submitting the Form

Once the stock power form has been filled out, it should be signed and dated by the current owner. Depending on the situation, the form may need to be notarized or witnessed by a third party. The completed form should be submitted to the appropriate parties, such as the brokerage firm or transfer agent.

5. Considerations When Filling Out a Stock Power Form

When filling out a stock power form, it is important to consider several factors. For example, if the stock is being transferred as a gift, it may be subject to gift taxes. It is also important to consider any restrictions or limitations on the transfer of the stock, such as those imposed by the company or by applicable laws and regulations.

6. Best Practices for Filling Out a Stock Power Form

To ensure that the stock power form is filled out correctly and completely, it is important to follow best practices. This may include reviewing the form carefully before submitting it, double-checking all of the information, and seeking professional advice if necessary. It is also important to keep copies of all relevant documents, such as the stock power form and any supporting documentation.

Filling out a stock power form is an important step in transferring ownership rights with a stock power. By following the steps outlined above and considering the relevant factors, it is possible to ensure that the transfer is completed correctly and legally.

Filling out a Stock Power Form - Stock Assignment: Transferring Ownership Rights with Stock Power

Executing a stock assignment is a process that involves transferring ownership rights from one party to another. It is a crucial step in the stock transfer process, and it requires both the assignor and the assignee to follow specific procedures to ensure a smooth transfer of ownership . In this section, we will explore the steps involved in executing a stock assignment and some insights from different points of view.

1. Review the Stock Power Form

Before executing a stock assignment, it is essential to review the stock power form carefully. This document is a legal instrument that transfers ownership rights from the assignor to the assignee. It contains important information, such as the name of the assignor, the name of the assignee, the number of shares being transferred, and the date of the transfer. Both the assignor and the assignee must sign the stock power form in the presence of a notary public.

2. Choose the Right Type of Stock Assignment

There are two types of stock assignments: a full assignment and a limited assignment. A full assignment transfers all ownership rights from the assignor to the assignee, while a limited assignment transfers only specific ownership rights, such as the right to vote or receive dividends. The type of stock assignment you choose depends on your specific needs and circumstances.

3. Consider the Tax Implications

Executing a stock assignment may have tax implications for both the assignor and the assignee. The assignor may be subject to capital gains tax if the stock has appreciated in value since it was acquired. The assignee may be subject to income tax if they receive dividends or sell the stock at a profit. It is important to consult with a tax professional to understand the tax implications of executing a stock assignment.

4. Choose the Right Method of Transfer

There are several methods of transferring ownership rights, including physical delivery, book-entry transfer, and electronic transfer. Physical delivery involves the physical delivery of stock certificates from the assignor to the assignee. Book-entry transfer involves the transfer of ownership rights through an intermediary, such as a stock transfer agent . Electronic transfer involves the transfer of ownership rights through an electronic network, such as the Depository Trust Company (DTC). The method of transfer you choose depends on your specific needs and circumstances.

5. seek Professional assistance

Executing a stock assignment can be a complex process, and it is advisable to seek professional assistance. A stock transfer agent can help you navigate the transfer process and ensure that all necessary procedures are followed. A tax professional can help you understand the tax implications of executing a stock assignment. Seeking professional assistance can help ensure a smooth transfer of ownership rights.

Executing a stock assignment is an essential step in transferring ownership rights from one party to another. It requires careful consideration of the stock power form, the type of stock assignment, the tax implications, the method of transfer, and professional assistance. By following these steps, you can ensure a smooth transfer of ownership rights.

Executing a Stock Assignment - Stock Assignment: Transferring Ownership Rights with Stock Power

When transferring ownership rights with a stock power, legal considerations must be taken into account to ensure a smooth and legally valid transaction. These considerations can vary depending on the type of stock being transferred and the parties involved. Here are some of the key legal considerations to keep in mind:

1. Type of Stock: The type of stock being transferred will impact the legal requirements for the transfer . For example, transferring common stock may require different legal documentation than transferring preferred stock. It's important to understand the specific requirements for the type of stock being transferred.

2. Parties Involved: The parties involved in the transfer will also impact the legal considerations . For example, transferring stock between family members may require different documentation than transferring stock between unrelated parties. It's important to understand the legal requirements based on the parties involved.

3. Tax Implications: The transfer of stock ownership can have tax implications for both the transferor and transferee. It's important to understand the tax consequences of the transfer and to consult with a tax professional if necessary.

4. Securities Laws: The transfer of stock ownership is subject to certain securities laws, including the securities act of 1933 and the Securities Exchange Act of 1934. These laws regulate the sale and transfer of securities and may require certain disclosures or filings.

5. State Laws: State laws may also impact the transfer of stock ownership. For example, some states require specific documentation or filings for stock transfers. It's important to understand the state laws that apply to the transfer.

When considering the legal considerations for stock assignment, it's important to consult with a legal professional to ensure compliance with all applicable laws and regulations. A legal professional can also help determine the best option for transferring ownership rights with a stock power.

Options for transferring ownership rights with a stock power include:

1. Direct Transfer: A direct transfer involves transferring the stock from one party to another without the involvement of a broker or intermediary. This option may be simpler and less expensive, but may require more legal documentation and may not be available for all types of stock.

2. Broker-Assisted Transfer: A broker-assisted transfer involves using a broker to facilitate the transfer of stock ownership. This option may be more expensive, but may be easier and more efficient, particularly for larger transfers or transfers involving multiple parties.

3. Gift Transfer: A gift transfer involves transferring ownership of the stock as a gift. This option may have tax implications for the transferor and transferee and may require additional legal documentation.

Ultimately, the best option for transferring ownership rights with a stock power will depend on the specific circumstances of the transfer. Consulting with a legal professional can help determine the most appropriate option and ensure compliance with all applicable legal requirements.

Legal Considerations in Stock Assignment - Stock Assignment: Transferring Ownership Rights with Stock Power

When it comes to stock assignment, there are several mistakes that people make which can lead to legal and financial complications. It is important to understand the process of transferring ownership rights with stock power and avoid these common mistakes.

1. Failing to Complete the Stock Assignment Form Correctly

One of the most common mistakes made in stock assignment is failing to complete the stock assignment form correctly. This can lead to delays in the transfer of ownership rights and can result in legal complications. It is important to ensure that all the required fields are filled out correctly and that the form is signed and dated by the appropriate parties.

2. Not Having a Properly Endorsed Stock Certificate

Another mistake that people make is not having a properly endorsed stock certificate. This is important because the stock certificate is the physical representation of the ownership rights of the stock. It is important to ensure that the certificate is properly endorsed by the seller and that the buyer has the certificate in their possession.

3. Not understanding the Tax implications of Stock Assignment

Another mistake that people make is not understanding the tax implications of stock assignment. Depending on the circumstances, there may be tax implications for both the buyer and the seller. It is important to consult with a tax professional to understand the tax implications before completing the stock assignment.

4. Not Using a Broker or Transfer Agent

Some people try to complete the stock assignment themselves without using a broker or transfer agent. This can lead to complications and delays in the transfer of ownership rights. It is recommended to use a broker or transfer agent to ensure that the process is completed correctly and efficiently.

5. Not Verifying the Identity of the Buyer or Seller

Finally, it is important to verify the identity of the buyer or seller before completing the stock assignment. This can help to prevent fraud and ensure that the transfer of ownership rights is legitimate. It is recommended to use a reputable broker or transfer agent who can help with this process.

Stock assignment can be a complicated process, but by avoiding these common mistakes, it can be completed successfully. It is important to ensure that the stock assignment form is completed correctly, that the stock certificate is properly endorsed, that the tax implications are understood, and that a reputable broker or transfer agent is used. By following these guidelines, the transfer of ownership rights can be completed efficiently and without complications.

Common Mistakes to Avoid in Stock Assignment - Stock Assignment: Transferring Ownership Rights with Stock Power

Stock Power and Stock Assignment are important concepts in the world of finance and investment. These concepts help investors transfer ownership rights of their stocks to another party. In this blog post, we have discussed the details of these concepts and their implications. We have also analyzed the different perspectives and provided insights on how to use these concepts effectively.

1. Importance of Stock Power and Stock Assignment

Stock Power and Stock Assignment are essential tools for investors who want to transfer ownership rights of their stocks to another party. These concepts enable investors to transfer their stocks without having to go through the hassle of selling them. This is particularly useful in cases where the investor wants to gift the stocks to someone or transfer them to another account.

2. Understanding Stock Power

Stock Power is a legal document that enables the transfer of ownership rights of a stock from one party to another. It is an endorsement that is required by the brokerage firm to transfer the ownership of the stock. The stock power must be signed by the owner of the stock and must be submitted along with the certificate of the stock to the brokerage firm.

3. Understanding Stock Assignment

Stock Assignment is a process where the ownership rights of a stock are transferred from one party to another. The process involves filling out a transfer form and submitting it to the brokerage firm. The transfer form must be signed by the owner of the stock and must be submitted along with the certificate of the stock.

4. pros and Cons of stock Power and Stock Assignment

Stock Power and Stock Assignment have their own advantages and disadvantages. Stock Power is a simpler process that requires the submission of a single document, whereas Stock Assignment involves filling out a transfer form. However, Stock Power can only be used if the certificate of the stock is in the possession of the owner, whereas Stock Assignment can be used even if the certificate is lost or misplaced.

5. Best Option

The best option depends on the situation. If the certificate of the stock is in the possession of the owner, Stock Power is the best option. However, if the certificate is lost or misplaced, Stock Assignment is the better option. In any case, it is important to consult with the brokerage firm to determine the best option.

Stock Power and Stock Assignment are important concepts that enable investors to transfer ownership rights of their stocks. These concepts have their own advantages and disadvantages, and the best option depends on the situation. It is important to consult with the brokerage firm to determine the best option.

Conclusion and Final Thoughts on Stock Power and Stock Assignment - Stock Assignment: Transferring Ownership Rights with Stock Power

Read Other Blogs

Hijjama Center Community is a network of entrepreneurs, mentors, investors, and experts who share a...

Equity financing and equity swaps are two essential components of alternative funding solutions in...

Why Mentorship Matters for Junior Companies For junior companies, having a mentor can be the...

Loyalty programs have become an integral part of modern business strategies, aiming to foster...

First aid is not only a moral obligation, but also a legal one for businesses. According to the...

1. Economic indicators play a crucial role in understanding the overall health and performance of...

When it comes to investment, there are various options available out there. One of them is tontine...

One of the most crucial factors that determines the success or failure of an entrepreneurial...

Embarking on the journey of establishing a motorbike repair business is akin to preparing for a...

• assignments basic law

Assignments: The Basic Law

The assignment of a right or obligation is a common contractual event under the law and the right to assign (or prohibition against assignments) is found in the majority of agreements, leases and business structural documents created in the United States.

As with many terms commonly used, people are familiar with the term but often are not aware or fully aware of what the terms entail. The concept of assignment of rights and obligations is one of those simple concepts with wide ranging ramifications in the contractual and business context and the law imposes severe restrictions on the validity and effect of assignment in many instances. Clear contractual provisions concerning assignments and rights should be in every document and structure created and this article will outline why such drafting is essential for the creation of appropriate and effective contracts and structures.

The reader should first read the article on Limited Liability Entities in the United States and Contracts since the information in those articles will be assumed in this article.

Basic Definitions and Concepts:

An assignment is the transfer of rights held by one party called the “assignor” to another party called the “assignee.” The legal nature of the assignment and the contractual terms of the agreement between the parties determines some additional rights and liabilities that accompany the assignment. The assignment of rights under a contract usually completely transfers the rights to the assignee to receive the benefits accruing under the contract. Ordinarily, the term assignment is limited to the transfer of rights that are intangible, like contractual rights and rights connected with property. Merchants Service Co. v. Small Claims Court , 35 Cal. 2d 109, 113-114 (Cal. 1950).

An assignment will generally be permitted under the law unless there is an express prohibition against assignment in the underlying contract or lease. Where assignments are permitted, the assignor need not consult the other party to the contract but may merely assign the rights at that time. However, an assignment cannot have any adverse effect on the duties of the other party to the contract, nor can it diminish the chance of the other party receiving complete performance. The assignor normally remains liable unless there is an agreement to the contrary by the other party to the contract.

The effect of a valid assignment is to remove privity between the assignor and the obligor and create privity between the obligor and the assignee. Privity is usually defined as a direct and immediate contractual relationship. See Merchants case above.

Further, for the assignment to be effective in most jurisdictions, it must occur in the present. One does not normally assign a future right; the assignment vests immediate rights and obligations.

No specific language is required to create an assignment so long as the assignor makes clear his/her intent to assign identified contractual rights to the assignee. Since expensive litigation can erupt from ambiguous or vague language, obtaining the correct verbiage is vital. An agreement must manifest the intent to transfer rights and can either be oral or in writing and the rights assigned must be certain.

Note that an assignment of an interest is the transfer of some identifiable property, claim, or right from the assignor to the assignee. The assignment operates to transfer to the assignee all of the rights, title, or interest of the assignor in the thing assigned. A transfer of all rights, title, and interests conveys everything that the assignor owned in the thing assigned and the assignee stands in the shoes of the assignor. Knott v. McDonald’s Corp ., 985 F. Supp. 1222 (N.D. Cal. 1997)

The parties must intend to effectuate an assignment at the time of the transfer, although no particular language or procedure is necessary. As long ago as the case of National Reserve Co. v. Metropolitan Trust Co ., 17 Cal. 2d 827 (Cal. 1941), the court held that in determining what rights or interests pass under an assignment, the intention of the parties as manifested in the instrument is controlling.

The intent of the parties to an assignment is a question of fact to be derived not only from the instrument executed by the parties but also from the surrounding circumstances. When there is no writing to evidence the intention to transfer some identifiable property, claim, or right, it is necessary to scrutinize the surrounding circumstances and parties’ acts to ascertain their intentions. Strosberg v. Brauvin Realty Servs., 295 Ill. App. 3d 17 (Ill. App. Ct. 1st Dist. 1998)

The general rule applicable to assignments of choses in action is that an assignment, unless there is a contract to the contrary, carries with it all securities held by the assignor as collateral to the claim and all rights incidental thereto and vests in the assignee the equitable title to such collateral securities and incidental rights. An unqualified assignment of a contract or chose in action, however, with no indication of the intent of the parties, vests in the assignee the assigned contract or chose and all rights and remedies incidental thereto.

More examples: In Strosberg v. Brauvin Realty Servs ., 295 Ill. App. 3d 17 (Ill. App. Ct. 1st Dist. 1998), the court held that the assignee of a party to a subordination agreement is entitled to the benefits and is subject to the burdens of the agreement. In Florida E. C. R. Co. v. Eno , 99 Fla. 887 (Fla. 1930), the court held that the mere assignment of all sums due in and of itself creates no different or other liability of the owner to the assignee than that which existed from the owner to the assignor.

And note that even though an assignment vests in the assignee all rights, remedies, and contingent benefits which are incidental to the thing assigned, those which are personal to the assignor and for his sole benefit are not assigned. Rasp v. Hidden Valley Lake, Inc ., 519 N.E.2d 153, 158 (Ind. Ct. App. 1988). Thus, if the underlying agreement provides that a service can only be provided to X, X cannot assign that right to Y.

Novation Compared to Assignment:

Although the difference between a novation and an assignment may appear narrow, it is an essential one. “Novation is a act whereby one party transfers all its obligations and benefits under a contract to a third party.” In a novation, a third party successfully substitutes the original party as a party to the contract. “When a contract is novated, the other contracting party must be left in the same position he was in prior to the novation being made.”

A sublease is the transfer when a tenant retains some right of reentry onto the leased premises. However, if the tenant transfers the entire leasehold estate, retaining no right of reentry or other reversionary interest, then the transfer is an assignment. The assignor is normally also removed from liability to the landlord only if the landlord consents or allowed that right in the lease. In a sublease, the original tenant is not released from the obligations of the original lease.

Equitable Assignments:

An equitable assignment is one in which one has a future interest and is not valid at law but valid in a court of equity. In National Bank of Republic v. United Sec. Life Ins. & Trust Co. , 17 App. D.C. 112 (D.C. Cir. 1900), the court held that to constitute an equitable assignment of a chose in action, the following has to occur generally: anything said written or done, in pursuance of an agreement and for valuable consideration, or in consideration of an antecedent debt, to place a chose in action or fund out of the control of the owner, and appropriate it to or in favor of another person, amounts to an equitable assignment. Thus, an agreement, between a debtor and a creditor, that the debt shall be paid out of a specific fund going to the debtor may operate as an equitable assignment.

In Egyptian Navigation Co. v. Baker Invs. Corp. , 2008 U.S. Dist. LEXIS 30804 (S.D.N.Y. Apr. 14, 2008), the court stated that an equitable assignment occurs under English law when an assignor, with an intent to transfer his/her right to a chose in action, informs the assignee about the right so transferred.

An executory agreement or a declaration of trust are also equitable assignments if unenforceable as assignments by a court of law but enforceable by a court of equity exercising sound discretion according to the circumstances of the case. Since California combines courts of equity and courts of law, the same court would hear arguments as to whether an equitable assignment had occurred. Quite often, such relief is granted to avoid fraud or unjust enrichment.

Note that obtaining an assignment through fraudulent means invalidates the assignment. Fraud destroys the validity of everything into which it enters. It vitiates the most solemn contracts, documents, and even judgments. Walker v. Rich , 79 Cal. App. 139 (Cal. App. 1926). If an assignment is made with the fraudulent intent to delay, hinder, and defraud creditors, then it is void as fraudulent in fact. See our article on Transfers to Defraud Creditors .

But note that the motives that prompted an assignor to make the transfer will be considered as immaterial and will constitute no defense to an action by the assignee, if an assignment is considered as valid in all other respects.

Enforceability of Assignments:

Whether a right under a contract is capable of being transferred is determined by the law of the place where the contract was entered into. The validity and effect of an assignment is determined by the law of the place of assignment. The validity of an assignment of a contractual right is governed by the law of the state with the most significant relationship to the assignment and the parties.

In some jurisdictions, the traditional conflict of laws rules governing assignments has been rejected and the law of the place having the most significant contacts with the assignment applies. In Downs v. American Mut. Liability Ins. Co ., 14 N.Y.2d 266 (N.Y. 1964), a wife and her husband separated and the wife obtained a judgment of separation from the husband in New York. The judgment required the husband to pay a certain yearly sum to the wife. The husband assigned 50 percent of his future salary, wages, and earnings to the wife. The agreement authorized the employer to make such payments to the wife.

After the husband moved from New York, the wife learned that he was employed by an employer in Massachusetts. She sent the proper notice and demanded payment under the agreement. The employer refused and the wife brought an action for enforcement. The court observed that Massachusetts did not prohibit assignment of the husband’s wages. Moreover, Massachusetts law was not controlling because New York had the most significant relationship with the assignment. Therefore, the court ruled in favor of the wife.

Therefore, the validity of an assignment is determined by looking to the law of the forum with the most significant relationship to the assignment itself. To determine the applicable law of assignments, the court must look to the law of the state which is most significantly related to the principal issue before it.

Assignment of Contractual Rights:

Generally, the law allows the assignment of a contractual right unless the substitution of rights would materially change the duty of the obligor, materially increase the burden or risk imposed on the obligor by the contract, materially impair the chance of obtaining return performance, or materially reduce the value of the performance to the obligor. Restat 2d of Contracts, § 317(2)(a). This presumes that the underlying agreement is silent on the right to assign.

If the contract specifically precludes assignment, the contractual right is not assignable. Whether a contract is assignable is a matter of contractual intent and one must look to the language used by the parties to discern that intent.

In the absence of an express provision to the contrary, the rights and duties under a bilateral executory contract that does not involve personal skill, trust, or confidence may be assigned without the consent of the other party. But note that an assignment is invalid if it would materially alter the other party’s duties and responsibilities. Once an assignment is effective, the assignee stands in the shoes of the assignor and assumes all of assignor’s rights. Hence, after a valid assignment, the assignor’s right to performance is extinguished, transferred to assignee, and the assignee possesses the same rights, benefits, and remedies assignor once possessed. Robert Lamb Hart Planners & Architects v. Evergreen, Ltd. , 787 F. Supp. 753 (S.D. Ohio 1992).

On the other hand, an assignee’s right against the obligor is subject to “all of the limitations of the assignor’s right, all defenses thereto, and all set-offs and counterclaims which would have been available against the assignor had there been no assignment, provided that these defenses and set-offs are based on facts existing at the time of the assignment.” See Robert Lamb , case, above.

The power of the contract to restrict assignment is broad. Usually, contractual provisions that restrict assignment of the contract without the consent of the obligor are valid and enforceable, even when there is statutory authorization for the assignment. The restriction of the power to assign is often ineffective unless the restriction is expressly and precisely stated. Anti-assignment clauses are effective only if they contain clear, unambiguous language of prohibition. Anti-assignment clauses protect only the obligor and do not affect the transaction between the assignee and assignor.

Usually, a prohibition against the assignment of a contract does not prevent an assignment of the right to receive payments due, unless circumstances indicate the contrary. Moreover, the contracting parties cannot, by a mere non-assignment provision, prevent the effectual alienation of the right to money which becomes due under the contract.

A contract provision prohibiting or restricting an assignment may be waived, or a party may so act as to be estopped from objecting to the assignment, such as by effectively ratifying the assignment. The power to void an assignment made in violation of an anti-assignment clause may be waived either before or after the assignment. See our article on Contracts.

Noncompete Clauses and Assignments:

Of critical import to most buyers of businesses is the ability to ensure that key employees of the business being purchased cannot start a competing company. Some states strictly limit such clauses, some do allow them. California does restrict noncompete clauses, only allowing them under certain circumstances. A common question in those states that do allow them is whether such rights can be assigned to a new party, such as the buyer of the buyer.

A covenant not to compete, also called a non-competitive clause, is a formal agreement prohibiting one party from performing similar work or business within a designated area for a specified amount of time. This type of clause is generally included in contracts between employer and employee and contracts between buyer and seller of a business.

Many workers sign a covenant not to compete as part of the paperwork required for employment. It may be a separate document similar to a non-disclosure agreement, or buried within a number of other clauses in a contract. A covenant not to compete is generally legal and enforceable, although there are some exceptions and restrictions.

Whenever a company recruits skilled employees, it invests a significant amount of time and training. For example, it often takes years before a research chemist or a design engineer develops a workable knowledge of a company’s product line, including trade secrets and highly sensitive information. Once an employee gains this knowledge and experience, however, all sorts of things can happen. The employee could work for the company until retirement, accept a better offer from a competing company or start up his or her own business.

A covenant not to compete may cover a number of potential issues between employers and former employees. Many companies spend years developing a local base of customers or clients. It is important that this customer base not fall into the hands of local competitors. When an employee signs a covenant not to compete, he or she usually agrees not to use insider knowledge of the company’s customer base to disadvantage the company. The covenant not to compete often defines a broad geographical area considered off-limits to former employees, possibly tens or hundreds of miles.

Another area of concern covered by a covenant not to compete is a potential ‘brain drain’. Some high-level former employees may seek to recruit others from the same company to create new competition. Retention of employees, especially those with unique skills or proprietary knowledge, is vital for most companies, so a covenant not to compete may spell out definite restrictions on the hiring or recruiting of employees.

A covenant not to compete may also define a specific amount of time before a former employee can seek employment in a similar field. Many companies offer a substantial severance package to make sure former employees are financially solvent until the terms of the covenant not to compete have been met.

Because the use of a covenant not to compete can be controversial, a handful of states, including California, have largely banned this type of contractual language. The legal enforcement of these agreements falls on individual states, and many have sided with the employee during arbitration or litigation. A covenant not to compete must be reasonable and specific, with defined time periods and coverage areas. If the agreement gives the company too much power over former employees or is ambiguous, state courts may declare it to be overbroad and therefore unenforceable. In such case, the employee would be free to pursue any employment opportunity, including working for a direct competitor or starting up a new company of his or her own.

It has been held that an employee’s covenant not to compete is assignable where one business is transferred to another, that a merger does not constitute an assignment of a covenant not to compete, and that a covenant not to compete is enforceable by a successor to the employer where the assignment does not create an added burden of employment or other disadvantage to the employee. However, in some states such as Hawaii, it has also been held that a covenant not to compete is not assignable and under various statutes for various reasons that such covenants are not enforceable against an employee by a successor to the employer. Hawaii v. Gannett Pac. Corp. , 99 F. Supp. 2d 1241 (D. Haw. 1999)

It is vital to obtain the relevant law of the applicable state before drafting or attempting to enforce assignment rights in this particular area.

Conclusion:

In the current business world of fast changing structures, agreements, employees and projects, the ability to assign rights and obligations is essential to allow flexibility and adjustment to new situations. Conversely, the ability to hold a contracting party into the deal may be essential for the future of a party. Thus, the law of assignments and the restriction on same is a critical aspect of every agreement and every structure. This basic provision is often glanced at by the contracting parties, or scribbled into the deal at the last minute but can easily become the most vital part of the transaction.

As an example, one client of ours came into the office outraged that his co venturer on a sizable exporting agreement, who had excellent connections in Brazil, had elected to pursue another venture instead and assigned the agreement to a party unknown to our client and without the business contacts our client considered vital. When we examined the handwritten agreement our client had drafted in a restaurant in Sao Paolo, we discovered there was no restriction on assignment whatsoever…our client had not even considered that right when drafting the agreement after a full day of work.

One choses who one does business with carefully…to ensure that one’s choice remains the party on the other side of the contract, one must master the ability to negotiate proper assignment provisions.

Founded in 1939, our law firm combines the ability to represent clients in domestic or international matters with the personal interaction with clients that is traditional to a long established law firm.

Read more about our firm

© 2024, Stimmel, Stimmel & Roeser, All rights reserved  | Terms of Use | Site by Bay Design

Understanding Share Transfer or Transfer of Shares

This article will help you understand all about share transfer and the procedure for the transfer of shares in a company.

With the economy changing, the ways of investing money have also changed. It was not long ago when we had many companies that were owned by just a single individual. Today, many companies are owned by a pool of individuals .

This article will help you understand all about share transfer and the procedure for the transfer of shares in a company .

Transfer of Shares

When a company is formed, the shares are allotted . After some time, shareholders will want to sell a part or all of their shares to someone else; this is called the transfer of shares in the company . But what exactly goes into this process?

What is transfer of shares?

There would be times where you would want to change the share structure of your company . This can be done by changing the existing proportion of shares between shareholders or adding a new shareholder. So, the transfer of shares in the company is the process of transferring existing shares from one person to another , either by selling or by gifting them.

When a person purchases or receives a company’s stock , they get a certificate that shares the details of the ownership of the shares, known as the stock certificate . So, when this person decides to transfer the shares to someone else, they would have to perform a transfer using a share transfer form.

Possible reasons for the transfer of shares

A share transfer takes place under many different conditions. For instance, when a shareholder leaves the company , they would have to transfer the shares to another shareholder. The same happens when a shareholder dies or retires . With this, it is important to know the process of the transfer.

Here’s a short summary of the procedure for transfer of shares:

• Step 1 : Confirm your shareholdings: You need to confirm the number of shares you have, including the number of shares you want to give away and the number you want to keep.
• Step 2 : Hold a Board Meeting: As per the board agreement, the share transfer has to be approved by the board before it can be done. So, hold a board meeting and get the action approved.
• Step 3 : Fill the Share Transfer Form: It is the J30 form , a standard document used to transfer existing shares from one person to another. This form would hold the details of the seller or gifter of the shares, the receiver, number of shares, type of shares, and consideration paid. The shareholder selling the shares would then have to sign and date the form. If the shares are being transferred by the company and not an individual shareholder, then the director of the company would have to sign it.
• Step 4 : Issue new share certificates: With the confirmed share structure in place, the company’s next step is to issue new share certificates detailing the shareholdings. These will also render any previous share certificates as effectively canceled.

Share Transfer Form

The share transfer form , which is also known as a share transfer instrument , is a standard document that is needed for the transfer of shares in a company. This document is used when a shareholder or the company wants to sell or gift their company shares to another person or company.

The document is simple, where it outlines the particulars of the party selling the shares, the particulars of the person receiving it, the number of shares to be transferred, the company whose shares are transferred, the cost of each share, etc. As per the law, a private company cannot directly transfer shares to a person, but an existing shareholder can do so . When the form is filled, the transferor and the transferee will sign the document .

With this, the company can then affix its common seal on the document . Or, in place of this, either two directors, or one director and one secretary would need to sign on the document. If either party is an organization, then the authorized representative of the organization needs to sign the form. This will act as the seal for the transaction and is an integral part of confirming the transfer of shares in the company . Once this has been done, the document is kept in the company’s records.

How To Transfer Shares From One Shareholder to Another Person?

The transfer of shares in the company seems to be the same for all companies, but we know that there are different types of business entities, and each has its own kind of structures and processes. Keeping this in mind, we have shared the process of the transfer of shares for each main kind of company:

#1 Transfer of shares in a Corporation

The shares in a corporation are freely transferable . Nonetheless, the Articles of Incorporation, the agreement between the shareholder, or the bylaws might place some reasonable restrictions on the transfer of shares. For being about to transfer shares, the shareholder would require the board members’ approval and the approval of all the other shareholders in the company . Once this is done, the share transfer form is filled in, and the new share certificate is issued accordingly to the person getting the shares.

When the corporation sells its shares, the corporation would have to pay tax on the income and gain at the corporate level . And there is no preferential tax rate for capital gains recognized by a corporation. The money obtained from the sale of the shares is taxed as a dividend. And if it is sold as a plan of liquidation, it is taxed as a capital gain .

However, if an individual shareholder is selling the shares , they would have to pay tax on the capital gains at the preferential individual tax rate.

#2 Transfer of shares in S corporation

S corporations are corporations for all non-tax purposes. And that is why the steps needed for the transfer of shares are normally the same as those in the C corporation . Once the company or the individual shareholder decides to transfer the shares, they would need The Board’s approval, and then they need to fill the share transfer form. With this, the new share certificate is issued, and the shares are transferred. Ensure that all these transactions are noted in the company’s records and the cap table .

Since S corporations are pass-through entities , the tax implications are different from a C corp. When the shares in a company are sold, the S corporation would have to pay tax on the capital gains at the corporate level . This is then passed out to the shareholders. And if the shareholders are individuals, the amount is then taxed at the preferential capital gains tax rate. Shareholders get a step-up in tax basis in their shares as a result of corporate gain recognition.

#3 Transfer of shares in LLC

An LLC is governed by an Operating Agreement created when it is formed. This agreement provides the details on how the transfer of shares would be done in the company. If you are a shareholder in the LLC, you would have signed the operating agreement as well. And even though the operating agreement should have the rules that define the transfer of shares in the company, the LLC can also have a buy-sell agreement for it separately. It would share details taking into consideration every situation possible that can lead to the transfer of shares.

With this said, the transfer of shares in an LLC is not so different from that of a corporation. The only difference is that the transfer is governed by the rules in the operating agreement or by a buy-sell agreement . Once the board has approved the share transfer, and the conditions as per the agreement are met, the share transfer form must be filled and signed. As soon as it is signed, the shares are handed to the transferee, and the stock certificate is issued . With this, the company also needs to record the transaction in the company’s records and the cap table.

Taxation for Transfer of Shares

Selling stocks can have consequences on your tax bill. If your stock transaction resulted in you making a profit , you would owe the government capital gains tax . And if your transactions had a capital loss, you can use the loss to reduce your income for the year. You also get the option to carry the loss to the next year so that you can offset any capital gain that you make.

Let us understand what capital gains are a bit more before we can talk about the taxation of the transfer of shares.

What is a capital gain?

Capital gain is the difference in the amount you paid for the shares from the amount you sold the shares . In fact, capital gains aren’t just used for stocks, but it is for any asset you sell and get paid more than you paid for it.

There are two kinds of capital gains, namely, short-term and long-term capital gains. Short-term capital gains are when you own the stock or asset for less than a year before selling it off. In this case, you are taxed at the same rate as your income. This means that the short-term gain tax rate is equal to the income tax rate for your bracket.

If you own the stock for more than a year , it is considered a long-term capital gain . In this case, you are taxed at a much lower rate than your income tax. As a matter of fact, in 2020, single taxpayers get to pay:

• 0% on long-term capital gains if their taxable income is below $40,000 ,
• 15% – if their income is between $40,000 and $441,450 , and
• 20% – if their income is more than $441,450 .

Take the help of your accountant or lawyer to know more about your tax bracket.

Now, the tax you pay also depends on what you are doing with the shares . There are two situations, both have been explained below in detail:

#1 Selling Shares

In general, the capital gains tax will have to be paid for when you sell or give for free an asset, such as shares . The tax applied to it would depend on your income and the total capital gains you made from the shares in that year.

#2 Transfer as Gift

There are situations where a shareholder wishes to give their own shares as a gift to someone else. And the good news here is that there is no capital gains tax on the shares that are offered as gifts to your spouse or civil partner . But there is a general rule that when an individual gifts a chargeable asset like a company’s shares, it is considered disposal. This gives rise to a chargeable gain in the same way just it happens during the transfer of shares in exchange for money.

Nonetheless, when you gift shares, the shares’ market value at the time of disposal is taken into account for the capital gains tax and inheritance tax purposes. The logic behind this is that the tax is imposed on the increase in the value of the shares during the time the person owned them , that is if the value of the shares has increased from the time they acquired them to the time they gave them away for free.

Imagine you get 5,000 shares at $0.10 per share . It is evident that the value of the shares would increase as the company grows. Let us say that the market value of the shares is now $2 per share . So, if you want to give away the complete 5,000 shares for free, they would be liable for capital gains tax. This would be calculated on the difference between the current market value of the shares ($2 * 5,000 = $10,000) and the acquisition value of the shares ($0.10 * 5,000 = $500) . This means that the remaining amount of $9,500 would be subject to tax .

Transfer Shares on Eqvista

With all the above explained and now that you have understood everything, it is essential to record every transaction you make. Recording it means documenting the transaction in your cap table. And Eqvista is an advanced cap table software to help you record and manage all your equity transactions .

Before you begin, you will need to make sure that you have an account on Eqvista and have created your company account .

Step 1: Log into your account , select your company profile and from the dashboard, click on “Equities” under the “Securities” tab.

Here, click on the equity class from where the share transfer is about to take place. In this case, we select the option “Series B” .

Step 2: Once you do this, you will reach the next page, as below:

From here, select the certificate number of the shareholder whose shares are being transferred. In this case, we selected the option “SB-002” .

Step 3: This will take you to the page where you can see the details of this transaction. Next click on “Action” and then on “Transfer shares” .

There are two kinds of transfers that you can make. One is the partial transfer and one is the transfer of all shares . Here we chose partial transfer, and type in the transferee’s name.

Step 4: You will reach the next step where you need to add the number of shares that you want to transfer. Since it is a partial transfer, and the shareholder who is making the transfer has about 1,000,000 shares, we choose to make a transfer of 200,000 shares here.

You will also have to add the price of the share at the time of the transfer . In this case we add in the share price of $30, and press on Submit .

With this, the transaction would be complete, and you will be redirected to the page of the transferor shareholder .

Step 5: To see the transfer and its effect on the secondary transactions of your cap table, you need to click on “Cap table” from the left side menu and then on “Secondary transactions” . This will take you to the following page.

Here, click on the “Transfers” tab to see the transfer transaction as shown below.

And just like this, you can easily make the transfer of shares in the company through Eqvista . To know more about the Eqvista app and how to use it, check out our knowledge center or contact us today!

More about Transfer of Shares

Interested in issuing & managing shares.

If you want to start issuing and managing shares, Try out our Eqvista App , it is free and all online!

Define Shares and Its Types: Everything You Need to Know

To define shares and its types, one needs to have a basic understanding of shares and their purpose and role in a company. 3 min read updated on February 01, 2023

To define shares and its types, one needs to have a basic understanding of shares and their purpose and role in a company. Shares are a standard instrument for raising capital for a business by distributing them among interested investors.

The Definition of a Share

The definition of a share includes the capital or stock of a company. Each business has a share capital requirement. A share is a single unit within the entire capital of the company.

A share is also a type of security. It is often measured by its liability and interest. Members that own shares of a company are referred to as shareholders. They are investors that have invested funds into the business. In return, they will receive dividends on the profits of the business.

The Characteristics of a Share

Shares operate under the following characteristics:

• A share should be moveable. The rules for share transfer must be included in the company's Articles of Incorporation.
• The funds used to purchase a share are non-refundable. This, however, will be affected by business dissolution or capital reduction.
• Each share must be assigned a number . This helps to track and monitor individual shares. This requirement, however, is not present in all shareholder agreements.

Types of Shares

There are also different types of shares available within a company:

• Preference shares: Preference shares have preferential rights to dividends if a business closes. Preference shares do not have voting rights available, except in specific situations.
• Equity shares: Equity shares do not have preferential rights. Instead, they receive payment from dividends and repayment of capital after preference shares' claims were settled. The specific rate of return is decided by the board members and directors. Equity shares are often used to raise money for the company and are referred to as the owner's funds. It is possible that an equity share will not pay any dividends if the business does not profit. While preference shareholders get a fixed rate, equity shareholders may receive varying payments each year. Equity shareholders are often owners of the company and have regular voting rights available. They may also be subject to things like deferred shares or founder's shares.
• Cumulative preference share: A cumulative preference shareholder does not receive payment when a profit is not made. However, cumulative shares may be paid through unpaid dividends. A cumulative preference shareholder is only paid after other shareholders have been paid. If no funds remain, then they will not receive a payment that year.
• Non-cumulative preference shares: Non-cumulative preference shareholders have preferential shareholder rights and receive a fixed dividend payment. However, they are only paid if profits remain. If no profits left, the owed amount is not carried over to the following years.
• Redeemable preference shares : Any capital collected from selling shares is not paid to a shareholder. But, any capital raised through preference shares can be paid to the shareholder at the end of the period. There may be time limits on these redeemable shares, which sometimes exceed 10 years or more.
• Participating/Non-participating preference shares: These shares are paid through a combination of profits and fixed rates. Once all profits have been paid to shareholders, any extra money is divided equally among these shareholders.
• Convertible preference shares: Convertible preference shares can be converted into equity shares at a preset time. All conversions must be approved based on the regulations set in the company Articles of Incorporation.

Structure of Equity Shares

Equity shareholders are often owners or operating partners in the business. Their shares are considered venture capital and are one of the most common types of shares within a business. They do not risk the funding of a company because equity shareholders are not paid unless profits are made. They are important to the structure of the business because they raise funds that are needed to grow and operate the business.

Additionally, an equity shareholder is not paid until all other types of shareholders are paid. Dividend payment amounts are often based on how much the company has profited. Equity shareholders are ideal for investors that want a little more risk in return for the possibility of a higher payout.

If you need help with share types, you can post your legal need on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.

Hire the top business lawyers and save up to 60% on legal fees

Content Approved by UpCounsel

• Authorized Shares
• Called up Capital
• How to Issue More Shares
• How to Calculate Equity Share Capital?
• Issued Shares vs Outstanding Shares
• Cumulative Dividends
• Authorized Shares vs Issued Shares
• What Is Equity Shares Definition?
• How Many Shares Can I Buy Maximum?
• How to Issue Shares in a Company

• Search Search Please fill out this field.

What Is Share Capital?

Understanding share capital, the bottom line.

• Corporate Finance

What Is Share Capital? How It Works and Types

Share capital is the money a company raises by issuing common or preferred stock. The amount of share capital or equity financing a company has can change over time with additional public offerings .

The term share capital can mean slightly different things depending on the context. Accountants have a much narrower definition and their definition rules on the balance sheets of public companies. It means the total amount raised by the company in sales of shares.

Key Takeaways

• A company's share capital is the money it raises from selling common or preferred stock.
• Authorized share capital is the maximum amount a company has been approved to raise in a public offering.
• A company may opt for a new offer of stock in order to increase the share capital on its balance sheet.

Investopedia / Crea Taylor

Share capital is reported by a company on its balance sheet in the shareholder's equity section. The information may be listed in separate line items depending on the source of the funds. These usually include a line for common stock, another for preferred stock, and a third for additional paid-in capital .

Common stock and preferred stock shares are reported at their par value at the time of sale. In modern business, the "par" or face value is a nominal figure. The actual amount received by a company in excess of par value is reported as "additional paid-in capital."

On a balance sheet, the proceeds of stock sales are listed at their nominal par value while the "additional paid-in capital" line reflects the real price paid over par for the shares.

The amount of share capital reported by a company includes only payments for purchases made directly from the company. The later sales and purchases of those shares and the rise or fall of their prices on the open market have no effect on the company's share capital.

A company may opt to have more than one public offering after its initial public offering (IPO). The proceeds of those later sales would increase the share capital on its balance sheet.

Types of Share Capital

The term "share capital" is often used to mean slightly different things depending on the context. When discussing the amount of money a company can legally raise through the sale of stock, there are several categories of share capital.

Accountants have a much narrower definition.

Authorized Share Capital

Before a company can raise equity capital, it must obtain permission to execute the sale of stock. The company must specify the total amount of equity it wants to raise and the base value of its shares, called the par value.

The maximum amount of share capital a company is allowed to raise is called its authorized capital.

This does not limit the number of shares a company may issue but it puts a ceiling on the total amount of money that can be raised by the sale of those shares. For example, if a company obtains authorization to raise $5 million and its stock has a par value of $1, it may issue and sell up to 5 million shares of stock.

Issued Share Capital

The total value of the shares a company elects to sell to investors is called its issued share capital. The par value of the issued share capital cannot exceed the value of the authorized share capital. Some companies—depending on where they are located—can issue investor called-up shares with the promise to be paid in full at a later date.

Share Capital on a Balance Sheet

The technical accounting definition of share capital is the par value of all equity securities, including common and preferred stock, sold to shareholders.

However, people who are not accountants often include the price of the stock in excess of par value in the calculation of share capital. As noted, the par value of stock is nominal, typically $1 or less. So, the difference between the par value and the real sale price, called paid-in capital , is usually considerable. Nevertheless, it is not technically included in share capital or capped by authorized capital limits.

Here's an example, and how it appears on a balance sheet: Assume company ABC issues 1,000 shares. Each share has a par value of $1 and sells for $25. The company's accountant will record $1,000 as share capital and the remaining $24,000 as additional paid-in capital.

Is Share Capital the Same As Equity?

The share capital is the part of a company's equity that it has raised from issuing common or preferred shares and is different from other types of equity accounts.

What Are the 2 Classes of Share Capital?

Share capital is considered to be either common or preferred stock.  Each category has specific rights attached to the shares.

What Are Other Names for Share Capital?

Share capital is also called shareholders' capital, equity capital, contributed capital, or paid-in capital. 

Share capital is the funding a company has raised through issuing common or preferred stock. Authorized share capital is the maximum amount of share capital a company is allowed to raise. Issued share capital is the total amount of shares a company opts to sell to investors. A company that wants to raise more equity and increase its share capital can do so by obtaining authorization (from its Board of Directors and shareholders) to issue and sell additional shares.

U.S. Securities and Exchange Commission. " Topic 1 - Registrant's Financial Statements ."

• Terms of Service
• Editorial Policy
• Privacy Policy
• Your Privacy Choices

Stock Pledge Agreement

Jump to section, what is a stock pledge agreement.

• Information about both parties
• The amount of the loan owed
• The amount of the stocks being pledged
• Duration of the agreement
• Signatures of both parties

Common Sections in Stock Pledge Agreements

Below is a list of common sections included in Stock Pledge Agreements. These sections are linked to the below sample agreement for you to explore.

Stock Pledge Agreement Sample

Reference : Security Exchange Commission - Edgar Database, EX-10.39 6 dex1039.htm FORM OF STOCK PLEDGE AGREEMENT , Viewed November 11, 2021, View Source on SEC .

Who Helps With Stock Pledge Agreements?

Lawyers with backgrounds working on stock pledge agreements work with clients to help. Do you need help with a stock pledge agreement?

Post a project  in ContractsCounsel's marketplace to get free bids from lawyers to draft, review, or negotiate stock pledge agreements. All lawyers are vetted by our team and peer reviewed by our customers for you to explore before hiring.

Meet some of our Stock Pledge Agreement Lawyers

Angela Hayden is an accomplished and driven attorney with a diverse professional background that sets her apart. Having served as a former Assistant Public Defender in Allegheny County, Angela acquired invaluable expertise in navigating the complexities of the criminal justice system. Her trial experience spans a wide range of cases, from minor retail theft to complex criminal homicide, demonstrating her ability to deliver successful outcomes for her clients. Prior to her focus on criminal defense, Angela honed her skills in public policy and political consulting through her work with both the Pennsylvania and United States House of Representatives. This experience provided her with a deep understanding of the intricacies of public policy and the ability to offer strategic guidance to clients. Angela's career also took her to a civil defense firm, where she traveled across the country, defending clients in litigation. This experience enhanced her ability to handle complex civil matters and strengthened her litigation skills. In addition to her expertise in criminal defense and civil litigation, Angela has demonstrated her proficiency in employment law, providing guidance and consultation to small businesses and non-profit organizations. Her keen insight into employment law matters ensures that businesses operate within legal boundaries while fostering a positive work environment. Furthermore, Angela is a licensed realtor, well-versed in residential real estate transactions. This additional knowledge allows her to offer comprehensive legal support to clients involved in real estate matters, ensuring their interests are protected throughout the process. Angela holds a degree from Hampton University and obtained her Juris Doctor from the University of Dayton School of Law. She is pursuing a Master of Business Administration. She is licensed to practice law in Pennsylvania and the District of Columbia, demonstrating her commitment to providing exceptional legal services in multiple jurisdictions. With her extensive experience and passion for achieving favorable outcomes for her clients, Angela Hayden is a dedicated advocate ready to guide you through your legal journey.

Successful entrepreneur and business attorney with keen insight into the challenges faced by small and medium-sized businesses. In addition to my solo practice, I have extensive experience as general counsel for highly regulated businesses where I have negotiated and drafted a wide array of contracts, conducted internal regulatory compliance, engaged in transactional work and assisted with general commercial litigation.

Licensed in MI since 2010. Practiced SSDI appeals and auto negligence for over a decade until 12/2022 when I left largest personal injury firm In MI to open my own estate planning firm. Looking for part-time contract/remote work to supplement income as I build my own practice.

Seasoned corporate, business and real estate attorney with 30 years experience managing private practice groups and in-house legal functions for publicly traded, privately held, and family companies.

I am an experienced family law attorney licensed in California and Florida with over 13 years of experience.

I have worked for over 20 years in the areas of family law, business formation, contracts and real estate law. In the area of family law, I represent clients in all areas of family law including child custody, child support, spousal support and marital property division as well as preparing prenuptial and separation agreements. I am experienced in real estate law, including commercial and residential leases, preparing various types of real estate related contracts. I am also experienced in business formation among other business law matters. I currently work in the area of grant management with the Small Business Administration.

Oliver Keene is not your typical attorney. With a personal touch and a passion for helping others, he goes above and beyond to provide exceptional legal services. Born and raised in the heart of the Appalachian coalfields, Oliver understands the value of hard work and perseverance. His small-town upbringing instilled in him a deep sense of community and a commitment to making a difference in people's lives. Oliver's journey in the legal field began with a Bachelor's degree in Criminal Justice from Bluefield University. He went on to earn his Juris Doctorate from Lincoln Memorial University - Duncan School of Law, where he excelled in his studies and developed a strong foundation in law. Throughout his career, Oliver has gained invaluable experience working as a public defender, an attorney advisor for the Small Business Administration, and in various legal roles. With a focus on estate planning and business law, Oliver is dedicated to helping individuals and families protect their assets, plan for the future, and navigate the complexities of the legal system. His approachable demeanor, attention to detail, and genuine care for his clients set him apart. Oliver's clients can trust that he will go the extra mile to ensure their legal needs are met with the utmost professionalism and personalized service. Outside of his legal practice, Oliver enjoys spending time with his wife and daughter, exploring the great outdoors, and indulging in his passion for hunting and fishing. His commitment to serving military families is evident in his offering of discounted services as a token of gratitude for their sacrifices. When you choose Oliver Keene as your attorney, you're not just hiring a legal professional - you're gaining a trusted advisor and a compassionate advocate. With Oliver by your side, you can have confidence that your legal matters will be handled with the highest level of expertise and care.

Find the best lawyer for your project

How it works.

Post Your Project

Get Free Bids to Compare

Hire Your Lawyer

Financial lawyers by top cities

• Austin Financial Lawyers
• Boston Financial Lawyers
• Chicago Financial Lawyers
• Dallas Financial Lawyers
• Denver Financial Lawyers
• Houston Financial Lawyers
• Los Angeles Financial Lawyers
• New York Financial Lawyers
• Phoenix Financial Lawyers
• San Diego Financial Lawyers
• Tampa Financial Lawyers

Stock Pledge Agreement lawyers by city

• Austin Stock Pledge Agreement Lawyers
• Boston Stock Pledge Agreement Lawyers
• Chicago Stock Pledge Agreement Lawyers
• Dallas Stock Pledge Agreement Lawyers
• Denver Stock Pledge Agreement Lawyers
• Houston Stock Pledge Agreement Lawyers
• Los Angeles Stock Pledge Agreement Lawyers
• New York Stock Pledge Agreement Lawyers
• Phoenix Stock Pledge Agreement Lawyers
• San Diego Stock Pledge Agreement Lawyers
• Tampa Stock Pledge Agreement Lawyers

related contracts

• Accredited Investor Questionnaire
• Adverse Action Notice
• Bridge Loan
• Bridge Loan Contract
• Collateral Assignment
• Commercial Loan
• Convertible Bonds
• Convertible Note
• Convertible Preferred Stock
• Cumulative Preferred Stock

other helpful articles

• How much does it cost to draft a contract?
• Do Contract Lawyers Use Templates?
• How do Contract Lawyers charge?
• Business Contract Lawyers: How Can They Help?
• What to look for when hiring a lawyer

Quick, user friendly and one of the better ways I've come across to get ahold of lawyers willing to take new clients.

Contracts Counsel was incredibly helpful and easy to use. I submitted a project for a lawyer's help within a day I had received over 6 proposals from qualified lawyers. I submitted a bid that works best for my business and we went forward with the project.

I never knew how difficult it was to obtain representation or a lawyer, and ContractsCounsel was EXACTLY the type of service I was hoping for when I was in a pinch. Working with their service was efficient, effective and made me feel in control. Thank you so much and should I ever need attorney services down the road, I'll certainly be a repeat customer.

I got 5 bids within 24h of posting my project. I choose the person who provided the most detailed and relevant intro letter, highlighting their experience relevant to my project. I am very satisfied with the outcome and quality of the two agreements that were produced, they actually far exceed my expectations.

Want to speak to someone?

Get in touch below and we will schedule a time to connect!

Find lawyers and attorneys by city

Committed to offering clients expert, personalised legal advice

Assignment of shares in case of a limited company: required documents

In case of limited liability companies, shareholders may assign their shares. This assignment procedure may be performed by a Romanian lawyer .

A consequence of such a share assignment is that the assignor – the person assigning his shares, leaves the company and therefore loses his capacity of shareholder, while the assignee – the person who receives the shares – continues the activity of the company by acquiring the capacity of shareholder.

The share assignment procedure must be carried out at the Trade Registry. Lawyers appointed in this regard shall submit on behalf of the limited liability company (Ltd) all required documents.

Assigning shares is a procedure that may require two steps (if shares are assigned to persons outside the Ltd) or one single step (if shares are assigned to one or more of the Ltd’s existing shareholders). Shares may be assigned to individuals or companies (Romanian or foreign).

Two-step assignment of shares

Documents that need to be prepared as a first step:

• request for the assignment of shares;
• Decision of the General Assembly of Shareholders or, as the case may be, Decision of the sole shareholder (the assignment of shares must be expressly stipulated and all necessary information regarding the assignment);
• Assignment Agreement between the assignor and the assignee;

It is possible to be represented by a Romanian lawyer based on a special power of attorney.

Documents that need to be prepared during the second phase of the procedure:

• Registration request;
• Proof that the Decision of the General Assembly of Shareholders or the Decision of the sole shareholder was published in the Official Gazette;
• Decision of the General Assembly of Shareholders or, as the case may be, the Decision of the sole shareholder, which must include information about the assignment of shares;
• Copies of the individuals’ Identity Cards and, as the case may be, of the incorporation certificates in the case of companies, of those who shall acquire the capacity of shareholder;
• Statement given by the shareholder – company – that it complies with all required conditions for acting in the capacity of shareholder;
• Incorporation certificate, original or a copy bearing an Apostil, from the Trade Registry where the foreign company is registered, certifying its existence;
• Restated Articles of Incorporation – original copy.

Publisher: Budusan si Asociatii

Corporate legal services

Personal legal services, member directory, knowledge hub, legal information.

• Types of Shares

A share or the proportion of interest of a shareholder is equal to the proportion of the amount paid to the total capital payable to the company. Let us look at the various types of shares a company can issue – equity shares and preferential shares.

A share in the share capital of the company , including stock , is the definition of the term ‘Share’. This is in accordance with Section 2(84) of the Companies Act, 2013 . In other words, a share is a measure of the interest in the company’s assets held by a shareholder. In this article, we will look at the different types of shares like preferential and equity shares . Further, we will understand certain definitions and regulations surrounding them.

The Memorandum and Articles of Association of the company prescribe the rights and obligations of shareholders. Further, a shareholder must have certain contractual and other rights as per the provisions of the Companies Act, 2013.

Section 44 of the Companies Act, 2013, states that shares or debentures or other interests of any member in a company are movable properties. Also, they are transferable in the manner prescribed in the Articles of the company. Further, Section 45 of the Act mandates the numbering of every share. This number is distinctive. However, if a person is a holder of the beneficial interest in the share, then this rule does not apply (example: share in the records of a depository).

Kinds of Share Capital

(Source: WealthVidya)

According to Section 43 of the Companies Act, 2013, the share capital of a company is of two types:

Preferential Share Capital

• Equity Share Capital

The preferential share capital is that part of the Issued share capital of the company carrying a preferential right for:

• Dividend Payment – A fixed amount or amount calculated at a fixed rate. This might/might not be subject to income tax.
• Repayment – In case of a winding up or repayment of the amount of paid-up share capital, there is a preferential right to the payment of any fixed premium or premium on any fixed scale. The Memorandum or Articles of the company specifies the same.

Equity Share Capital – Equity Shares

All share capital which is NOT preferential share capital is Equity Share Capital. Equity shares are of two types:

• With voting rights
• With differential rights to voting, dividends, etc., in accordance with the rules.

In 2008, Tata Motors introduced equity shares with differential voting rights – the ‘A’ equity shares. According to the issue,

• Every 10 ‘A’ equity shares have one voting right
• ‘A’ equity shares get 5 percentage points more dividend than the ordinary shares.

Due to the difference in voting rights, the ‘A’ equity shares traded at a discount to ordinary shares with complete voting rights.

Deeming of Capital as Preferential Capital

In certain cases, capital is deemed as preferential capital even though it is entitled to either or both of the following rights:

• For dividends, apart from the preferential rights to amounts specified above, it can participate (fully or to a certain extent) with capital not entitled to the preferential rights.
• In case of a winding up, apart from the preferential right of the capital amounts specified above, it can participate (fully or to a certain extent), with capital not entitled to preferential rights in any surplus remaining after repaying the entire capital.

Remember, Section 43 is not applicable to private companies if the Memorandum or Articles of Associates specifies it.

Solved Question on Equity Shares and Preference Shares

Q: An equity share owner enjoys the same privileges as a preferential share owner. True or False?

Ans: This statement is false. A preferential shareowner has a few privileges over the equity share owner.

• He gets paid his dividend before that equity shareowners
• During liquidation, the company will pay a preferential shareowner first, ahead of the equity shareowner.

Customize your course in 30 seconds

Which class are you in.

Companies Act 2013

• Section 8 Company
• Private Companies
• One Person Company
• Doctrine of Indoor Management
• Articles of Association
• Doctrine of Ultra Vires
• Memorandum Of Association
• Classification of Capital
• Registration and Incorporation of a Company

One response to “Registration and Incorporation of a Company”

Thank you so much for the information. I have a website (www.heraldhiringsolutions.com) that currently runs under the proprietorship mode, but I have been thinking to change it to may be a private or limited liability mode. Is it possible to change a running company?

Leave a Reply Cancel reply

Your email address will not be published. Required fields are marked *

Download the App

• More from M-W
• To save this word, you'll need to log in. Log In

Definition of assignment

task , duty , job , chore , stint , assignment mean a piece of work to be done.

task implies work imposed by a person in authority or an employer or by circumstance.

duty implies an obligation to perform or responsibility for performance.

job applies to a piece of work voluntarily performed; it may sometimes suggest difficulty or importance.

chore implies a minor routine activity necessary for maintaining a household or farm.

stint implies a carefully allotted or measured quantity of assigned work or service.

assignment implies a definite limited task assigned by one in authority.

Examples of assignment in a Sentence

These examples are programmatically compiled from various online sources to illustrate current usage of the word 'assignment.' Any opinions expressed in the examples do not represent those of Merriam-Webster or its editors. Send us feedback about these examples.

Word History

see assign entry 1

14th century, in the meaning defined at sense 1

Phrases Containing assignment

• self - assignment

Dictionary Entries Near assignment

Cite this entry.

“Assignment.” Merriam-Webster.com Dictionary , Merriam-Webster, https://www.merriam-webster.com/dictionary/assignment. Accessed 13 Apr. 2024.

Legal Definition

Legal definition of assignment, more from merriam-webster on assignment.

Nglish: Translation of assignment for Spanish Speakers

Britannica English: Translation of assignment for Arabic Speakers

Subscribe to America's largest dictionary and get thousands more definitions and advanced search—ad free!

Can you solve 4 words at once?

Word of the day.

See Definitions and Examples »

Get Word of the Day daily email!

Popular in Grammar & Usage

Your vs. you're: how to use them correctly, every letter is silent, sometimes: a-z list of examples, more commonly mispronounced words, how to use em dashes (—), en dashes (–) , and hyphens (-), absent letters that are heard anyway, popular in wordplay, the words of the week - apr. 12, 10 scrabble words without any vowels, 12 more bird names that sound like insults (and sometimes are), 8 uncommon words related to love, 9 superb owl words, games & quizzes.

Transfer And Transmission Of Shares Under The Companies Act, 2013

Introduction.

While studying Company law, it is inevitable to understand the concept of shares and other sub-topics associated with it. Hence, while studying shares we come across the concept of transfer and transmission of shares. The two concepts seem similar but are far from it. Confusing one for the other would lead to further ambiguity and vagueness in one’s interpretation of these concepts. Hence, making it is essential to have a deeper understanding of the meaning of ‘transfer’ and ‘transmission’ of shares. While studying these concepts, we must first understand the meaning of certain terms that are often used in association with it and give a lucid explanation for these concepts which would make it comparatively easier to differentiate between the two, than it would otherwise.

Meaning of Shares

In this article, we will be focusing on the transfer and transmission of shares, therefore, it would not be right to explain the concept without first elucidating upon ‘shares’. The Companies Act, 2013 (hereinafter referred to as the “Companies Act”) has provided a rather straightforward and simple definition of shares and is embodied in Section 2 (84) of the aforesaid Act. According to it, a share is defined as “a share in the share capital of the Company including stocks.” It is the division of the capital into smaller yet equal units. These units are then referred to as ‘shares’. The people who invest and hold such shares are known as ‘shareholders’. In accordance with the Companies Act, there a primarily two types of Shares i.e., Preference Shares and Equity Shares. As the name suggests, the former is preferential in nature. Shareholders having such shares do not hold any voting rights.

During the liquidation process, once the debts of the creditors are settled, the preferential shareholders are paid out first. Preferential Shares are of many types depending upon several factors. To name a few, there are Cumulative Preference Share, Non- Cumulative Preference Share, Participating Preference Share, Non-participating Preference Shares, Non-Convertible Preference Shares, Convertible Preference Shares, Redeemable Preference Shares and Irredeemable Preference Shares. Further, the second type of Shares is Equity Shares. These shares are your basic, ordinary shares. Unlike Preference Shareholders, these shareholders have voting rights but earn dividends post Preference shareholders. The dividend is not fixed and is dependent on the profits. These shares are actively traded in the market.

Transfer of Shares

The concept of transfer of shares simply refers to the transfer of a particular share/s’ ownership. Such a transfer is voluntary. In case of transfer, there is stamp duty which depends upon the market value of such shares.

As mentioned before, this is one of the most important features of a company. Section 44 of the Companies Act provides that the shares or debentures or other interests of any member in a company may account for movable property , transferable in the manner that is given in the articles of the company. Furthermore, the securities or other interests of any member of a public company shall be freely transferable. The Companies Act also mentions that any contract or arrangement between 2 or more people regarding the transfer of securities shall be enforceable as a contract.

Transfer of Shares in Private Company

With reference to 2(68), a private company’s right to transfer its shares is restricted. Restricted must not be presumed to mean ‘prohibited’. by its articles. The transfer can be done by following the restrictions that have been laid down in the Article of the company. Due to such restrictions, it has become extremely necessary to study this topic specifically with Private Companies. Transfer of shares, in such a situation, will be in accordance with the provisions and restrictions of the Articles of Association and the transferee and transferor must be bound by them. There is no absolute prohibition on the right to transfer, nonetheless, section 44 specifies that if any such transfer is to be made it must be in the way it has been provided in the Articles of Association .

1. When restrictions on transfer are not applicable?

On the right of a member to transfer their shares where the shares are to be transferred to his/her representatives. In case of death of a shareholder, legal representatives may require the registration of shares in the names of heirs, on whom the shares have been devolved.

When the shares are proposed to be issued on a right basis, existing members would have a right to renounce shares likely to be allotted to them. If they do so, then these shares will be allotted to the renounces for the first time and therefore no transfer of shares will take place.

In the case of John Tinson & co. P. Ltd. v. Surjeet Malhan (Mrs.) [i] , the Supreme Court held that where the articles of a private company required the transfers of the company shares to be made with the previous sanction of the company’s Board of Directors, a transfer without such approval would be deemed to be invalid.

2. Methods for placing restrictions on the right of transfer of shares.

When a member wishes to sell his shares, such shares shall first be offered to other existing members of the company. The price will then be left to be determined by the directors or by the auditor of the company or by the use of the formula set out in the articles. But where no existing member is willing to acquire such shares, then these shares can be transferred by the transferor to the proposed transferee. This is the Right of pre-emption.

The Powers of directors to refuse registration of transfer of shares are specified in the articles of association of the company. Nonetheless, there must be bonafide use of such power by the Board of directors. In Berry & Stewart v. Tottenham Hostpur Football and Athletic Co. Ltd . [ii] , it was decided that such a power to refuse registration of shares, is a discretionary power and must be exercised reasonably, and in good faith for the benefit of the company. Unless otherwise proved, this power is said to have been exercised properly. In the case of M.J. Amrithalingam v. Gudiyatham Textiles Pvt. Ltd . [iii] , some important points were made by the court. Firstly, where the articles confer a discretion on the directors with respect to acceptance of transfers, it is a fiduciary discretion and is to be exercised in good faith where the Board considers to be in the interest of the company. Secondly, if according to the interpretation of the articles, the power of the directors to reject is on the basis of certain prescribed grounds and if it is established the request for transfer was rejected on these said grounds, the Court shall not substitute the opinion of the Board. Lastly, where the articles of association provide unrestricted discretion, the court would interfere only when there lies some proof of it being rejected in bad faith.

It is pertinent to note that a statutory remedy is available against such refusal and the procedure has been laid down in Section 58 of the Companies Act.

3. Can share be transferred to a Minor?

This is one of the most interesting questions concerning the transfer of shares. The general notion surrounding contracts is that a minor cannot enter into a contract. Well, although it is true, a guardian can enter into a contract on behalf of the minor under certain laws of the country. As per Section 56 of the Companies Act, the execution of the transfer deed can be either done by or on behalf of the transferor or the transferee. Hence, we can say that it is possible for the transfer deed to be executed by a minor through his natural guardian acting like the transferee, and the contract so entered into by a minor through his natural guardian is a binding and valid contract as per Section 8 of the Hindu Minority and Guardianship Act, 1956 . But what would happen if the minor is restricted from doing so by the purview of the Articles of association ? It is said that the Articles cannot prohibit the transfer of shares in favour of a minor, as it would be viewed as unreasonable. If such a restriction would be permitted, it would be rather difficult for a legal heir (minor) to inherit the shares of a deceased member.

4. Can a share be transferred without the authority of the owner of the shares?

The answer to this question is negative. One can only sell the shares if he is the registered owner or by someone else with the registered person’s authority. If an unauthorized person sells, it will be deemed void.

Transfer of Shares in a Public Company

Section 58 (2) of the Companies Act paves the way for the possibility of the transfer of shares in a Public Company. Such a transfer, by means of any contract or some arrangement, between two or more people, will be deemed legally enforceable as a contract. There lies no transfer of shares unless a proper instrument of transfer duly stamped, dated and executed by or on behalf of the transferor and the transferee has been delivered to the company by the transferor or transferee within a period of 60 days (listed or unlisted company) from the date of execution along with the certificate relating to the securities, or if no such certificate is in existence, then along with the related certificate or letter of allotment of securities.

Where the instrument is lost, the company may register the transfer on terms of indemnity. In the case of Shri Parveen Sharda v. Chopsani Ice Aerated Water and Oils Mills Ltd [iv] , an important point pertaining to the expression “duly stamped” was raised. The expression “duly stamped” has to be construed with reference to the provisions of Section 2(11) of the Indian Stamp Act, 1899 and the document in question would be an invalid one if the stamp affixed thereon has not been cancelled. Under Section 108(1) of the Companies Act, 1956 [Corresponds to section 56(1) of the Companies Act, 2013] it is mandatory that the company shall not register the transfer of shares unless a properly executed instrument of transfer duly stamped has been delivered to the company.

Transmission of Shares

Unlike the transfer of shares, the transmission of shares wouldn’t be considered ‘voluntary’ per se. This is due to the fact that transmission of share/s takes place when the shares are transferred due to the operation of law. Operation of law may include different circumstances/situations like the death of a member, member adjudicated as insolvent, lunatic, the order passed by court or arbitration award was given, etc. This process is devoid of a transfer deed or need for payment of stamp duty. Nonetheless, the liability associated with such shares persists even after transmission. Once the transmission of shares is completed, the person who receives such shares becomes the legal shareholder and may enjoy all the rights and duties (liabilities) attached to those shares.

1. Do legal heirs directly become the members in cases of transmission of shares?

Although the legal heirs are entitled to be registered as the shareholders of such shares, it is extremely important to understand that a legal heir can neither be forced to become a member nor does he have any such duty to do so. [v]

2. How is transmission different from the transfer?

As mentioned earlier, the transfer is voluntary, but transmission is due to the operation of law. A crucial point of difference between transfer and transmission of shares is that the former is usually for some consideration, while the latter is generally made in absence of any consideration for the same. Secondly, in case of transfer, an instrument of transfer is required. But in the case of transmission, no instrument of transfer is mandated. Similarly, transfer requires payment of stamp duty, while transmission does not have any such requirement.

While studying Company Law, we often tend to study the characteristics of a company and while doing so we often come across the concept of “transferability of shares” as one of its features. Hence, it becomes extremely important to study the same and understand how it differs in various types of companies and distinguish it from the transmission of shares. Understanding the process of transfer and transmission of shares may sound complicated, but once the nitty-gritty of the two has been thoroughly understood, the difference between the two can be lucidly explained. Furthermore, several judicial decisions have rendered some clarity on these topics.

1. https://www.karvyonline.com/knowledge-center/beginner/share-meaning-and-types-of-shares

2. https://taxguru.in/company-law/transfer-shares-companies-act-2013.html

3. https://www.legalwindow.in/all-you-need-to-know-about-procedure-of-transmission-of-shares-in-india/

4. https://support.zerodha.com/category/your-zerodha-account/transfer-of-shares-and-conversion-of-shares/articles/what-does-transmission-of-shares-of-mean?ref_query=transmission

5. Company Law Module by ICSI.

[i] AIR 1997 SC 1411.

[ii] 1936, 3 A11 E.R. 554

[iii] (1972) 42 Com Cases 350

[iv] Appeal No. 1 of 1982

[v] State of Kerala v. West Coast Planters Agencies Ltd., (1958) 28 Com Cases 13 (Ker)

Share This Post

Related posts.

Aayushi Mittra

Aayushi Mittra is a Fifth Year Law Student pursuing 5 Years BLS LLB at SVKM's Pravin Gandhi College of Law. Securing AIR 18 in CS Foundation exams, she wishes to not restrict herself to the ambit of General Corporate Laws, but also wishes to explore various other fields of law like IPR, Cyber Law, Family Law, Capital Markets & Securities Laws and Sports Law. Apart from academics, she immensely enjoys participating in Drafting competitions, MUNs and Article Writing competitions.

Indian Legal Solution

Concept of shares.

CONCEPT OF SHARES

Author: Divya Vishal

A share in a company refers to a unit of ownership of the company issuing shares. There are different elements that may impact the price of shares. At the point when an organization performs well and develops, its stock value or share value will in general go up. The Companies Act, 2013 defines shares as, “a share in the share capital of a company including stocks.” [1] It is a kind of security. According to Section 44 of the said Act, the shares of any member in a company shall be movable property. It is considered to be transferable in the manner provided by the articles of the company. [2] The Capital amounts to the sum put into the company with the goal that it can carry on its exercises. The capital refers to “share capital” in a company.

TYPES OF SHARES

Shares are mainly divided into two types-

1. Equity shares: It is also known as ordinary shares. They are one of the most widely recognized sorts of shares. These shares by the way of documents give right of possession and ownership to the investors. These equity shareholders bear the maximum possible hazard. These shareholders reserve the right to decide on different company matters by voting. Equity shares are additionally transferable and the dividend paid is an extent of benefit. Equity investors are not qualified for a fixed dividend. Their risk is constrained to the measure of their speculation or investment. There are no particular rights in holding.

Equity shares are further categorized according to the Share capital type:-

• Auhorised – Authorised Share capital is the greatest measure of capital that can be issued by a company. It tends to be expanded now and again. For this, a company needs to adjust to certain customs and furthermore pay expected expenses to legitimate entities.
• Issued -Issued Share Capital is the part of approved capital that is offered by a company to its investors.
• Subscribed- This is the part of issued share capital that the investors acknowledge and concur.
• Paid up capital : This alludes to the segment of the paid up capital for which the investors have to pay.
• Right shares : These are the sort of offers that companies issues to its current investors in order to secure the rights of possession and ownership of existing investors.
• Bonus shares : On some occasions the company may give offers to their investors as a profit. Such stocks are known as bonus shares.
• Sweat equity shares : When workers, employees or executives play out their job extraordinarily well, sweat value shares are given to remunerate them.

2. Preference shares : At the time when liquidation of company takes place, the investors who hold preference shares are taken care of first. They likewise reserve the right to get benefits of the organization before the ordinary investors. It can be further classified as:

• Participating and non-participating preference shares : Participating preference shareholders reserve the option to take an interest in residual profits after the profit has been paid out to equity shareholders. So in years where the organization has made more benefits, these shareholders are qualified for getting profits far beyond the fixed dividend. The non-participating preference shareholders don’t reserve a privilege to take an interest in the profits after the equity investors have been paid. So in case a company makes any overflow profits, they won’t get any extra profits. They will just get their fixed portion of profits each year.
• Cumulative and non-cumulative preference shares : With respect to cumulative preference shares, when the company doesn’t announce profits for a specific year, it is conveyed forward and gathered. At the point when the company makes benefits later on, these aggregated profits are paid first. In case of non-cumulative preference shares, profits don’t get collected, which implies when there are no future benefits, no profits or dividends are paid.
• Convertible and non-convertible preference shares : In convertible shareholders the Shareholders have a choice or option to change over these shares into ordinary equity shares. For this, particular terms and conditions should be met. Non-convertible shares don’t reserve an option to be changed over into value shares.
• Redeemable and Irredeemable preference shares : Redeemable shares can be asserted or repurchased by the issuing company. This can occur at a foreordained cost and at a foreordained time. These don’t have a maturity date which implies these sorts of shares are unending. So there is no compulsion for company to pay any sum after a fixed period.

ALLOTMENT OF SHARES

It refers to an apportionment of a specific number of shares to a candidate and dispersion of shares among the applicants who have submitted composed application. It is administered by Companies Act, 2013 and rules and guidelines in that and for Listed Companies( whose shares are recorded on the NSE and BSE or some other pertinent Stock trades in India) and its Subsidiary, the SEBI Act, 1992 and the Securities contracts Act, 1956, are likewise applicable. For an apportioning to be viewed as legitimate it will conform to the prerequisites and standards of the law of agreement that is in regards to the acknowledgment of shares.

• Rules of allotment of shares

(a) Application Form : An outline is a solicitation to the general population to buy shares. Normally, the proposing buyer needs to apply in an endorsed structure (given in the outline) for the reason which is known as ‘application structure’.

The outline fixes when the application will be opened and the allocation will be made. Allotment letter ought to be sent to the share applicant after the apportioning is made.

(b) Offer and Acceptance : We realize that the enrollment of a company subsequent to buying shares is only an agreement. The application structure which is given by the individuals is the ‘offer’ and distribution by executives is the ‘acknowledgment’ of that ‘offer’ and, comparably, the notification of acknowledgment which is sent is the acceptance of the offer.

(c) Acceptance for ‘Offer’ and conditional offer: Typically, the conditions are imprinted in the application structure or form, e.g., if there should be an occurrence of over-membership of shares, shares will be assigned in proportion and so forth. Conditions for acknowledgment are for all intents and purposes invalid.

(d) Appropriate Authority : It ought to be recollected that the assignment of offers ought to consistently be made by the best possible authority e.g., by the governing body, and distribution made without legitimate authority is void. In spite of the fact that allocation can be assigned to certain people if the Articles provide so.

(e) Rational Time : In the wake of getting the application form assignment ought to be made as quickly as time permits by the executives i.e., within a sound time or else ‘offer’ applications will be canceled if such time terminates.

(f) False Name : Section 68A states that any individual who under a fictitious name for getting or buying in for any share; or, initiates a company to assign, register any exchange of shares to him or some other person in a fictitious name shall be punishable by imprisonment.

• Restrictions in Allotment of Shares

(a)Minimum Subscription- According to Section 49 of Companies Act, 2013 the primary essential of an allotment is the requirement of a minimum subscription. The minimum subscription amount in the company prospectus will be expressed when offers of shares are made to the public. No offers will be assigned except if a predefined sum has been subscribed.

(b) Application Money: Section 69(3) sets out that the sum payable on each offer with the application structure must not be under 5% of the ostensible estimation of the shares.

(c) Money to be deposited in a Scheduled Bank: Section 69(4) states that money from the applicants must be stored in a Scheduled Bank until the declaration to begin business has been acquired or until the whole sum payable on applications for shares in regard of the minimum subscription has been received by the company.

(d). Over-subscribed Prospectus – An apportioning is substantial when the authorization of a stock exchange has been conceded and the outline being considered as over-bought in a bit of the cash got will be sent back to the candidates inside the given time period.

(f) Opening of the Subscription List:   Section 72 sets out that allotment can be made until the start of the fifth day after the distribution of the prospectus or such later time as might be recommended for the reasons in the prospectus.

(g) Revocation of Application: Application for shares can’t be denied until after the lapse of the fifth day after the hour of opening of the membership list with the exception in one case, for example on the off chance that any responsible person gives open notification of withdrawal of the agreement to the issue of the plan, any applicant can disavow his application.

• Consequences of Irregular Allotment of Shares

(a) Option : Section 71(1) and (2) expresses that the allotment gets voidable at the alternative of the investors. The choice to stay away from the contract must be practiced inside a period of 2 months of holding the legal meeting or where no legal meeting is held or where the distribution is made after the holding of the legal meeting, inside 2 months after the date of allocation. The equivalent can be practiced regardless of whether the company is under the liquidation process.

(b) Compensation : Section 71(3) sets out that if any chief intentionally or willfully repudiates the guidelines or approves the negation, he is subject to pay to the shareholders with respect to any misfortune or harm endured by them. In any case, the suit for remuneration must be filed inside 2 years from the allotment date.

(c) Fine: Section 72(3) states that the legitimacy of an allotment of shares will not be influenced by any repudiation of the previous provisions under this section, however, in case of any such contradiction, the company, each official who is in default, will be culpable with compensation which may stretch out to Rs. 5,000.

(d) Void: In the event that any apportioning or allotment of shares is done infringing upon Section 73, the equivalent is treated as void.

MAJORITY AND MINORITY SHAREHOLDERS

A majority shareholder is one who possesses half or more than half of the shares in a company. This can be an individual or a party that has been established for a particular goal. Contrary to it, a minority shareholder is anybody possessing not exactly 50% of shares or even lesser than 50% of shares. Courts will not interfere with the management of a company by its Board of Directors so long as they are acting within the powers conferred on them under the articles of the company. [3]

It is seen that the majority of shareholders hold dominance over minority shareholders as they have powers to control the matters of the company and minority shareholders have to agree with the majority verdict. This, however, may lead to a possibility that the members having majority vote may tend to be oppressive towards the minority shareholders misusing their majority strength. [4]

SHAREHOLDER’S RIGHTS

• Acknowledgment of basic rights of shareholders.
• Investors or shareholders reserve the rights to take an interest in choices concerning key corporate changes.
• The right of casting votes by shareholders.
• Divulgence of disproportionate voting rights of certain shareholders to get a level of control in the affairs of company.
• Markets for corporate control ought to be permitted to work.
• Shareholders ought to consider the expenses and advantages of practicing their democratic rights.

POWERS OF MAJORITY SHAREHOLDERS

Under Section 47 of the Companies Act, 2013, the holder of equity shares will reserve a right to cast a vote in regard to such capital on each goal set before the company. Member’s entitlement to cast a vote is perceived as the right of property and the investor may practice it as he might suspect fit by his advantage and decision. This standard is altered in specific cases. The specific resolution requires a greater part of 3/fourth of those votes at the meeting.

Therefore, where the act or the articles require a special resolution for any purpose, a 3/4 majority is necessary and a simple majority is not enough. [5] The resolution of a majority of shareholders passed at a duly convened and held general meeting, upon any question with which the company is legally competent to deal, is binding upon the minority and consequently upon the company. [6]

A clear understanding of the concept of shares and its allotment will enable an investor or a shareholder to see how the stock market functions.

[1]   Section 2(84) of the Companies Act, 2013

[2] Section 44 of the Companies Act, 2013

[3] O.Orojo ,Company Law and Practice in Nigeria 5ed (London: Lexis Nexis 2002) pg. 203

[4] N. V. Paaranjabe Textbook on Company Law, 10th Edition ( India: Central Law Agency, 1995) at pg. 389

[5] Edwards v. Halliwell, (1950) 2 All.E.R.1064

[6] North-West Transportation Co. v. Beatty, (1887) L.R. 12 A.C. 589.

Related Posts

Holding the line

Major general john weidner recalls how his time at los alamos shaped his views of deterrence..

By J. Weston Phippen | April 2, 2024

In 2008, Major General John Weidner—then a lieutenant colonel in the U.S. Army—was stationed at Los Alamos National Laboratory . As a nuclear forensics and countering weapons of mass destruction (WMD) officer, also known as an FA52, Weidner was at Los Alamos to learn from the scientists and engineers who design nuclear weapons.

While at the Lab, Weidner recalls a conversation with a physicist who worked down the hall. “He was complaining about something at Los Alamos, and after several minutes, I interrupted him to ask why, given his frustration, he was still working at the Lab. Without missing a beat, he looked me dead in the eye and said he wanted to be of service to the nation and that working at Los Alamos was the best way he knew how to contribute.”

Weider says this type of patriotism is common across the nuclear security enterprise. “I have no doubt, none whatsoever, that this workforce will create and deliver the capabilities our nation needs to defend itself and our allies,” he says. “My nearly four years at Los Alamos provided me with an understanding of what it takes to create, sustain, and dismantle the nuclear stockpile—an incredible investment. Moreover, working at Los Alamos gave me the technical knowledge and practical experience to be successful in every one of my follow-on assignments.”

Today, Weidner is the chief of staff for the United Nations Command (UNC) and United States Forces Korea (USFK). National Security Science  spoke to Weidner about how his time at Los Alamos informed his current position and helped shape his views on deterrence. 

This conversation has been edited for clarity and brevity. The views expressed are those of Major General Weidner and do not necessarily represent those of the U.S. Department of Defense.

You are stationed at U.S. Army Garrison Humphreys in South Korea, where you are the UNC and USFK chief of staff. What are your responsibilities?

The primary mission of the UNC is to support and enforce the armistice agreement that ended the hostilities of the Korean War. As the UNC chief of staff, I am the senior U.S. member on the UNC Military Armistice Commission (UNCMAC). I provide oversight of the process the UNCMAC uses to determine if an activity by either side violates the armistice agreement.

My other primary duty is to coordinate efforts across our personnel, intelligence, operations, logistics, plans, policy, information technology, and resource directorates within and between both commands.

How has the current geopolitical environment impacted your mission?

Russia, China, North Korea, Iran, and other state powers wish to overturn the rules-based international order that has served the free world so well for so long. For example, China is making claims to almost the entire South China Sea. Russia invaded Ukraine in complete disregard of the sovereignty of nations. North Korea is threatening war with the Republic of Korea and the United States. 

China has reportedly constructed more than 300 intercontinental ballistic missile silos in the past few years. Russia claims to have modernized more than 90 percent of its nuclear forces, and North Korea has enshrined nuclear weapons into its constitution and its leader has directed an exponential increase in nuclear warhead production.

For the first time, the United States will be challenged by two near-peer nuclear nations, as well as a third nuclear power that says it is increasing its nuclear capabilities and stockpile size. This is all occurring at a time when our nuclear forces are at their lowest level since the early 1950s, and all legacy nuclear weapons and delivery platforms have long outlived their design lifetimes.

The importance of the U.S. nuclear stockpile is to demonstrate that an adversary cannot escalate its way out of a failing conflict and that efforts to do so would cause its demise. Our nation must communicate and demonstrate this through well-trained, well-equipped conventional and strategic forces every day. 

How do you define deterrence?

Deterrence is the process of convincing someone not to do something . More specifically, it is decisively influencing perceptions regarding the costs and benefits of taking an action and not taking an action to convince someone that restraint is the best course. 

I believe the nature of deterrence endures. The character of deterrence, however, has evolved. For example, there are no widely agreed upon norms for behavior in space or cyberspace, and that is driving us to evolve our approach to strategic deterrence. 

How should the United States best prepare itself for the future?

Russia, China, and North Korea appear to be increasing the role of nuclear weapons in their national security strategies. Moreover, all those countries have used forms of nuclear coercion to obtain their national security objectives. In my opinion, the United States must evolve our nuclear stockpile to convince potential adversaries not to engage in conflict with the United States or our allies. First, we should move away from nuclear weapon life extension programs and begin the design of completely new nuclear weapons purpose-built for the threats, environments, and likely targets of the 21st century. Second, we should complete the planned modernization program of record and in doing so explore and incorporate smart, micro-, and nano-technologies into new nuclear weapon designs that provide real-time measurements that enable nuclear weapons with longer design lifetimes and reduced surveillance costs. These options would plug gaps that an adversary may see in our nuclear capabilities. They would also reassure our allies of our extended deterrence commitments.

A nation can have a reasoned debate on whether to develop a nuclear deterrent, but once the decision is made to develop that capability, there must be no debate on building, growing, and sustaining the capabilities and staff necessary to maintain that stockpile. The nation must also plan for and exercise strategic deterrence while in conventional conflict because the greatest risk of nuclear use will almost certainly stem from a regional conventional war. The conventional fight is unlikely to end with an adversary’s first use of a nuclear weapon. It will continue, and during that fight, the United States and our alliance must continue to deter the adversary from using nuclear weapons. 

How does Los Alamos help in this mission? 

Los Alamos and the other labs, plants, and sites of the National Nuclear Security Administration are foundational to the vision I described. We need to unleash the talent, creativity, ingenuity, and dedication of our workforce on the problem. 

The national labs are helping leaders within the Department of Defense understand the threats we currently and are likely to face in the near-term. The labs can offer options and capabilities at the best possible value. This has been invaluable and educational. For example, the labs have some of the best nuclear weapon effects models. Those models are helping military and civilian leaders understand the outputs and effects of nuclear weapons. 

Speaking of effects, people may not know the Army has nuclear specialists, the FA52s. What is their unique role?

FA52 officers are the primary advisors to senior leaders on the effects of nuclear weapons. We are assigned in various capacities across the Department of Defense, as well as the Department of Energy and the Department of State. Some FA52s also support the intelligence community by providing in-depth analyses and assessments of emerging nuclear threats.

Tell us about your assignment at Los Alamos.

Los Alamos was the longest assignment of my career—nearly four years from fall 2008 to summer 2012—and one of my most enjoyable. I supported weapon physics studies on the W78 warhead and did medical isotope production experiments to complete my PhD. I also helped create an electronic database of U.S. nuclear tests , participated in many national technical nuclear forensic analyses and exercises, and made several cooperative threat reduction trips to the former Soviet nuclear test site at Semipalatinsk, Kazakhstan.

I cannot overstate the importance of my assignment at Los Alamos. In my current role, I have been involved in the Nuclear Consultative Group meetings between senior Republic of Korea and U.S. national security members. My Los Alamos experience has informed my discussions with both the Republic of Korea government and military and helped me articulate the outputs and effects of nuclear weapons as well as options to manage the consequences of nuclear use. 

Given the increasing role of nuclear weapons in the nuclear security strategies of North Korea and other countries, how do you see the role of the FA52 evolving?

Among other things, FA52s will play key roles in advising military and civilian leaders about the effects of nuclear weapons and nuclear-related policy. In my experience, most leaders overestimate the effects of nuclear weapons, which may cause them to underestimate the likelihood of adversary nuclear use. 

I believe the most likely scenario for adversary first use of a nuclear weapon is in a conventional conflict they are losing. Should an adversary use a nuclear weapon in that case, the conventional war would continue. Therefore, it is important for U.S. military forces to understand how to operate in and through a nuclear environment created by an adversary. 

That may seem like an obvious statement, but almost all our leaders have lived their entire professional careers in an environment where adversary nuclear use was almost unthinkable. The United States has not been in a conflict where it had to worry about being out-escalated since World War II. 

With that in mind, it’s imperative that the United States and our allies develop a vision for how to go to war against a near-peer adversary. This includes an approach for how to mobilize a nation for war and how to integrate all elements of national power. In this way, our nation and our network of allies and partners will be best prepared to deter conflict and, if necessary, prevail in conflict. FA52s will be central to all of this.  ★

Meet another FA52 here.

More In This Issue

More national security science stories, subscribe to our newsletter.

Sign up to receive the latest news and feature stories from Los Alamos National Laboratory