Transfer of shares when is it effective?

In the case of Morsa Trading the district court held that a person becomes a registered member of a Cyprus company when that person’s name is registered in the register of members. Accordingly, the transfer of shares in a Cypriot Company requires, amongst other things, the registration in the register of members.

Mirror of the real standing of the shareholders in a company is the register of member when it is properly kept it shows the true picture.

Morsa Trading also confirmed in Karydas v. Karydas Case No. 698/2018

Can I transfer shares by signing HE57?

The filling of Forms HE57 on its own is not equal to signing an instrument of transfer. The instrument of transfer must be signed in order for the transfer to have legal effect in accordance with Section 73 of the Companies Law.

The court mentioned that submission of Form HE57 implies compliance with Section 73 and 113A in the Morsia case, however, I suppose the effect of the statement should not be abusive in nature but rather that Form HE57 complements the process of transfer of shares.

The recent announcement of the registrar of companies regarding electronic filing requires the company secretary, to submit additional confirmations.

How do the articles of association affect the transfer of shares

Each company maintains the articles of association permitted by law as well as those that the subscribers decide to adopt. To a large extent thoug, it is typical to include pre-emption clauses within the articles and require preapproval of other shareholders prior to the transfer of shares to take place.

In conclusion

The transfer of shares is a process, with several steps and documents. Bluntly submitting a form to the Registrar will not legally bind the parties, however dully executing an instrument of transfer and registering the new member in the register of members will.

Companies Law

Section 71 of the Companies Law, provides that a member’s share is personal property transferable in accordance with the articles of association.

Section 73 of the Companies Law, provides that irrespective of any provision in the articles of a company a transfer of shares or debentures is not legal unless an instrument of transfer is submitted to the Company.

Section 78 of the Companies Law, requires every company to have available a share certificate regarding all the shares transferred in the name of the registered member.

Section 113 of the Companies Law, provides that the register of members is prima facia evidence of any issues required or approved by the Law.

Section 113A(1) of the Companies Law requires any transfer of shares in a private company to be notified to the Registrar in accordance with the prescribed form (HE57), within 14 days from the registration in the register of members.

Cases

1. Κωνσταντίνου κ.α. ν. Αγησιλάου κ.α., Αρ. Αγωγής: 928/13, 28/9/2018  is a first instance court decision given on the 28.09.2018. It depicts the adventures of two partners who decided to form a Cyprus company and exploit a piece of land for the construction of 26 properties. A joint venture agreement was signed between the parties and shortly after that they disagreed and filed suit. The defendants counterclaimed and asked the court to reject a form HE57 submitted to the registrar of companies.

Held:

(a) It is not by chance that the [Companies] Law provider for a transfer of shares to be done with the execution of an instrument of transfer of shares in the prescribed form that the Law requires and not with the signature of Form HE57

(b) The court cannot understand why Mr. Artermiou believed that the signing of Form HE57 will substitute a signed instrument of transfer

2. Βάνιας Δημητρίου ν. Morsa Trading Limited κ.α., Αρ.Αγωγής 2521/2013, 28/8/2015  is a first instance court decision given on the 28.08.2015. It depicts the adventures of a group of people who where directors and shareholders of Morsa Trading Limited. The claimant claimed that she was entitled to 195 shares in the Company which now are held by the defendants.

Held :

(a) A person becomes a registered member of a Cyprus company when that person’s name is registered in the register of members. The submission of form HE57 to the Registrar constitutes evidence that such person has been registered in the register of members and that prior to registration a valid instrument of transfer in accordance with Section 73 of the [Companies] Law has been signed between the parties.