Post on 25-Dec-2015
Corporation – bearer shares
• Compare bearer shares – registered shares– Purposes of each– Cultural preferences
• Bearer shares– Transformation (vested right?)– Cancellation procedure (lost?)
• Bearer shares and corporate governance– Effect on exercise of voting rights– Effect on hostile takeover
Corporation – bearer shares
What is the difference between bearer shares and registered shares?
Why do Europeans prefer bearer shares?
What about usual preference
for certainty through registration?
Corporation – bearer shares
Corporation – bearer shares
Bearer shares• Rights
– Voting: deposit with corporation or bank
– Financial: deliver coupons for payment
– Litigation: deposit with court
– Transferability: mere delivery of certificate
• Default rule
Registered shares• Rights
– Voting: based on stock register
– Financial: based on record ownership
– Litigation: based on stock register
– Transferability: deliver (charter restriction)
• Described in charter
Corporation – bearer shares
Belgian dentist
Corporation – bearer shares
Are bearer shares a matter of right?
Corporation – bearer shares
Sh v. Corporation (Commercial Court – Zurich 1947)
Facts:
Issue:
Holding:
Analysis:
Corporation – bearer shares
Sh v. Corporation (Commercial Court – Zurich 1947)
Facts: Shs resolution to amend charter – bearer shares become registered. Sh sues to annul.
Issue: Can bearer shares be transformed by majority action or are the vested right?
Holding: Transformation OK
Analysis: Legal view changing - debt personal, but not equity. Not fundamental, vested right. Alienability not affected; here no vinculation in amendment (though “sleeper” in charter. No right to anonymity.
Corporation – bearer shares
What does US corporate law say about –
• bearer shares?
• restrictions on transferability?
Could there be bearer shares in the US?
Corporation – bearer shares
Corporation – bearer shares
Voting and quorum of US corporations requires record of shareholders (Del. GCL 213, 216, 219)
§ 213. Fixing date for determination of stockholders of record. [to determine stockholders who can vote board fixes record date]
§ 216. Quorum and required vote for stock corporations. [sets quorum and required vote of stockholders entitled to vote]
§ 219. List of stockholders entitled to vote; penalty for refusal to produce; stock ledger. [officer in charge of stock ledger makes alphabetical list of stockholders entitled to vote]
Except for Wyoming and Nevada
Corporation – bearer shares
Transfer restrictions valid in US corporations if reasonable
Del. GCL § 202. Restriction on transfer of securities.
(a) A written restriction on the transfer ... of a security ... may be enforced against the holder of the restricted security or any successor or transferee of the holder
(b) A restriction on the transfer ... may be imposed either by the certificate of incorporation or by the bylaws or by an agreement among any number of security holders ....
(c) A restriction on the transfer ... is permitted ... if it:(1) [first refusal rights]
(2) [purchase option]
(3) [consent requirement]
(4) [designated persons ... if not manifestly unreasonable]
Corporation – bearer shares
Are transfer restrictions valid under the Swiss Code of Obligations?
Isn’t this interference with a vested right?
Corporation – bearer shares
Sh v. Corporation (Appelationsgericht Basel-Stadt 1965)
Charter amendment transforms bearer shares into registered shares and restricts transfer only with management approval -
(1) Transformation OK
(2) Restriction invalid because management gets too much arbitrary power (must be reasonable)
Corporation – bearer shares
What if bearer shares
are lost … or worse?
Corporation – bearer shares
Cancellation procedure• Ex parte proceeding by original owner
– Certificates “lost”
– Notice by publication to “unknown holder”
• Outstanding certificates declared “null and void”– Corporation issues new certificates
– Holder (even BFP w/o notice) loses rights
• Bank custodians– Check official journal (serial numbers)
– Failure to protect holder – liable for negligence
Corporation – bearer shares
In re Seligman-Gans (Swiss Federal Court 1940)
Facts:
Issue:
Holding:
Analysis:
Corporation – bearer shares
In re Seligman-Gans (Swiss Federal Court 1940)
Facts: S-G left stock certificates of Swiss company in custody of with Frankfurt bank, which in 1938 says “loco Berlin.” S-G seeks cancellation.
Issue: Are confiscated shares “lost”?Holding: No, because present holder not “unknown”Analysis: If present holder known, no cancellation.
Irrelevant that confiscated, can’t seek redress.
Corporation – bearer shares
Would the S-Gs have redress in US court?
Consider the sovereign immunity and jurisdictional defenses.
What is the location of bearer shares?
Corporation – bearer shares
How are shares of public companies held in Germany (bearer shares), compared to the
United States (registered shares)?
What is the effect?
Corporation – bearer shares
Germany• Irregular deposit
– bank owner (holds shares)– customer contractual right
to redelivery
• Deposited with bank– Possesses shares– Company cannot
communicate directly – Bank exercises votes (or
sends proxy)– Bank must send materials to
customers (in France company can get SH info)
United States• Record ownership
– Share certificate (or uncertificated)
– Bank keeps stock ledger
• Beneficial ownership– Held by broker in “street
name” (depositary)– Shareholder controls voting – Broker must forward
company communications– Companies can obtain
NOBO lists (beneficial owners not object)
Corporation – bearer shares
Who controls public companies -
in Germany?
in the US?
Corporation – bearer shares
Corporation – bearer shares
Can there be takeovers in Germany?
Corporation – bearer shares
Do bearer shares make unfriendly
takeovers easier or more difficult?