Introduction
In accordance with Article 24 of the Amendment Bill of the Trade Law approved in 1347, a share refers to a portion of the capital of a joint stock company that delineates the level of participation, obligations, and interests of its owner in the company. Additionally, the share certificate is a negotiable document that represents each individual’s participation level in the joint stock company. Shares in joint stock companies are categorized into different types, including registered and unregistered. This text will outline the definition, types, transfer methods, and other pertinent aspects concerning the shares of a joint stock company.
Definition
Shares, as defined in the amendment bill of the trade law, are considered part of a company’s capital, divided into equal parts. Each of these parts is a share, and the total sum of these parts is called a share. Therefore, each person shares ownership of the company based on the number of shares they purchase.
Like owners, buyers of a company’s shares share in its benefits, obligations, and losses. They also benefit from benefits such as participation in public meetings and the right to vote in them, receiving annual profits, and sharing in the company’s assets in the event of liquidation.
- Share Sheet Information
Per Article 25 of the Amendment Bill of the Trade Law, the share sheet must include the following details:
- The name of the company and its registration number in the Companies Registration Office.
- The total registered capital and the amount that has been paid.
- Specification of the type of share.
- The nominal value of the share and the amount paid, both in letters and numbers.
- The quantity of shares represented by each sheet.
- Temporary Certificate Share
Article 27 of the amendment bill specifies that Before the shares are officially issued, the company must give shareholders a temporary share certificate. This certificate should indicate the number and type of shares, as well as the amount paid. Although this certificate is considered a share, within one year of paying the full nominal amount for the share, a permanent share certificate must be issued to the shareholder. In contrast, the temporary share certificate must be returned and canceled.
The issuance of temporary share certificates is intended to protect the rights of share buyers. According to Article 28, the issuance of temporary share certificates is prohibited until the company is registered. If this provision is breached, the signatories will be responsible for compensating third parties.
- Nominal Value of Shares
The nominal value of shares is calculated by dividing the company’s capital by the number of shares. This value is determined for each share when the company is established, and shares are issued and included in the articles of association. The Commercial Law does not specify a minimum or maximum nominal amount for shares, except in Article 29 of the amendment bill, which sets the maximum nominal amount of each share in a public joint-stock company at ten thousand Rials.
Types of Share
According to Notes 1 and 2 of Article 24 of the Commercial Law Amendment Bill, a joint-stock company’s shares are divided into several categories, including bearer, registered, and preferred.
- Bearer
Article 39 of the amendment bill outlines that bearer shares are issued as a physical document made out to the bearer, and the bearer is presumed to be the owner unless proven otherwise. These shares can be transferred by handing over the physical document. Therefore, bearer shares are shares where the owner’s name is not recorded, and the person possessing the physical document is considered the owner. The transfer of bearer shares requires handing over the physical document and does not involve any formal registration process.
- Registered
The term “registered shares” refers to shares that have the owner’s name printed on them. Article 40 of the Amendment Bill of the Commercial Law states that the transfer of registered shares must be recorded in the company registration office. The transferor, lawyer, or legal representative must sign the transfer in the registry. If the full nominal amount of the share has not been paid, the transferee’s full address should be recorded in the company’s share register. The transferee or their lawyer or legal representative should also sign this information. This ensures that the obligations arising from the share transfer are validly implemented. Any change of residence must be registered and signed in the same manner. Any transfer made without complying with these conditions is considered invalid from the company’s and third parties’ perspective.
- Preferred
Preferred shares are shares that come with special privileges and priority compared to ordinary shares. These privileges are outlined in the company’s articles of association and are approved by the extraordinary general assembly of shareholders. The privileges include the following:
- Discount in the payment of the nominal amount of shares
- Allocation of more profit to preferred shares
- Payment of the nominal value of shares to the shareholders of premium shares before the liquidation of the company in the event of liquidation
- Influence on the appointment of company board members or preference of the votes of preferred shareholders over ordinary shareholders
- Exclusion of preferred shareholders from bearing performance losses
Article 42 of the bill above states that a joint-stock company is permitted to issue preferred shares per its articles of association, subject to approval by the extraordinary general assembly of shareholders. The rights attached to these shares and their utilization must be clearly outlined and defined until the company is dissolved.
Any changes to the privileges associated with preferred shares must be approved by the company’s extraordinary general assembly, with the agreement of at least half plus one of such shares’ holders.
Transfer of Shares
In joint-stock companies, the company’s capital serves as collateral for creditors, and the shareholders’ personal identities are not important. As a result, shares can be freely transferred, allowing partners to leave the company by transferring their shares when necessary. However, Article 41 of the Commercial Law Amendment Bill allows the general assembly or company managers to restrict this freedom and impose conditions on share transfers. Therefore, unless the company’s articles of association require share transfers to be approved by the general assembly or the board of directors, the transfer of shares is completely free of any instruction.
- Required Documents
- Announcement of the establishment of the company
- The official gazette of the establishment of the company
- Identification documents of the shareholders, including national identity cards and birth certificate
- Announcement of the latest company changes
It is essential to note that the transfer of shares should be subject to the approval of the General Assembly or the Board of Directors. While it may seem beneficial for shareholders to have complete freedom to transfer their shares for expediting processes, it can lead to disorder. This is particularly concerning for private joint-stock companies, where the character of shareholders significantly influences the beginning of their partnership. Therefore, a mechanism must be established to preserve this collaboration.
If the general assembly is competent, its special procedures should be observed. If the board of directors is competent, individual relations should be considered. Therefore, to determine the appropriate mechanism in this regard, you can contact us and enjoy the specialized services of Karimi and Associates Law Firm in all matters related to commercial companies.