Danuta Pajewska

Who needs paper?

When conducting transactions involving shares in a Polish joint-stock company, it is essential to formulate the share sale agreement properly and carry out the measures required for effective transfer of the share rights to the buyer.

The selection of the method for concluding the transaction depends on whether the joint-stock company is a private company or public company.

In the case of a private company, signing of a share sale agreement is not sufficient for transfer of registered shares. It is also necessary to transfer to the buyer the right of possession of the share document and, particularly in the interest of the buyer, to notify the management board of the transaction so that the management board can update the entry in the ledger of registered shares. In the case of bearer shares, the effectiveness of the transaction requires at least delivery of the shares to the buyer.

It should be borne in mind that with respect to the company, the person regarded as the shareholder is the person entered in the ledger of registered shares, or the holder of bearer shares.

A shareholder of a private joint-stock company thus has the right, which the shareholder should exercise, to demand that the company deliver the share document after the shareholder has effectively taken up shares in the company’s capital. Without the share document, it will not be possible to effectively sell the shares.

A public company may issue shares in material or dematerialised form (which may only be bearer shares). The person regarded as the owner of dematerialised shares is the person who is the holder of the securities account operated by a brokerage or trust bank where the shares are recorded. This means that any transaction involving dematerialised shares in a public company, whether conducted through a brokerage or directly between the investors, which is not properly registered in the acquirer’s account, will not cause passage of the rights to the shares in accordance with the Act on Trading in Financial Instruments.

The proof of the shares being at the disposal of the shareholder is a deposit certificate issued by the brokerage or trust bank confirming the authority of the owner of the securities account to exercise the rights to the shares entered in the securities account. This rule applies to shares listed on either the main market of the Warsaw Stock Exchange or the NewConnect alternative market. Thus for a transaction involving bearer shares in a public company which are not in the form of a document but are dematerialised, and the fact of their possession is confirmed by an entry in the shareholder’s securities account at a brokerage, the record of the shares must be transferred from the seller’s securities account to the buyer’s securities account, which is equivalent to delivery of the shares in paper form.

Not all shares of a public company must be dematerialised, however. Often the founders of the company hold registered shares, which must be issued in paper form. The procedure for transferring registered shares is conducted, as in the case of a private company, by delivery of the shares and making the relevant entry in the ledger of registered shares.

Danuta Pajewska, Capital Markets and Financial Institutions practices, Wardyński & Partners