Magdalena Kasiarz

When buying bearer shares, be sure to check the validity of the share certificate

Before buying bearer shares (in a joint-stock company), it is important to check the validity of the share certificate. Under Commercial Companies Code Art. 328, a share certificate lacking the necessary data, the company seal, or the signature of the management board is invalid.

The data required for a share certificate are:

  1. The company’s name, registered office and address
  2. The registry court and the number under which the company is entered in the commercial register
  3. The par value, series and number of the shares, the type of shares and any special rights attached to the shares.

A share certificate may also be invalidated in other specific instances, e.g. due to failure to pay the contribution for the shares (Art. 331) or when it is necessary to amend or exchange the certificate (Art. 358).

The invalidity of a share certificate entails serious consequences for the buyer. As the Supreme Court of Poland confirmed in its judgment of 5 March 2008 (Case No. V CSK 467/07), if a bearer share certificate, or a duplicate issued in exchange for a cancelled certificate, is invalid, sale of the shares does not result in transfer to the buyer of the rights to the shares. This follows from the rule that in the case of bearer shares, as with any other bearer instrument, transfer of the rights under the instrument occurs through transfer of ownership of the document. Hence in order for the rights to a share certificate to be transferred, the certificate must be delivered (Civil Code Art. 92112 in connection with Art. 92116 and Art. 517 §2). Moreover, Civil Code Art. 517 §1 expressly provides that regulations on assignment, including the general rule set forth in Civil Code Art. 510 that a claim is transferred to the acquirer pursuant to the very agreement undertaking to transfer the claim, do not apply to assignment of a claim under a bearer instrument. Because an invalid share certificate does not incorporate any rights, transfer of such a document does not cause rights to be transferred to the buyer. Only an agreement is formed between the buyer and the seller, requiring the seller to sell the shares, but the dispositive effect, in the form of delivery of the shares and thus transfer of the share rights, does not occur. On the basis of the agreement alone, the acquirer does not become a shareholder and thus may not apply for issuance of a new share certificate under Commercial Companies Code Art. 357. Only the seller, as a shareholder of the company, will have such a right.

This conclusion is confirmed as well by Commercial Companies Code Art. 343, under which, in relation to the company, the person regarded as a shareholder of the company is the holder of a valid share certificate, regardless of how the holder obtained the rights to the shares. Therefore, holding an invalid share certificate does not give the buyer any rights in relation to the company.

Magdalena Kasiarz, Corporate Law, Restructuring, and Business-to-Business Contracts practices, Wardyński & Partners