Corporation – bearer shares Compare bearer shares – registered shares –Purposes of each –Cultural preferences Bearer shares –Transformation (vested right?)

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?