Know the restrictions and legal traps
You may already know that a shareholder’s certificate indicates ownership of shares in a corporation. In employment law, a shareholders’ certificate is yet another document that can contain legal traps for the unwary.
If you are negotiating for shares of stock or have been presented with an award or certificate for a grant of stock, you should consider talking with an expert employment lawyer for a better understanding. At Gardner Employment Law, this is an area of expertise, and we can help you.
Purpose of Certificates
Shares of stock represent intangible property rights. These are ownership rights in the assets, profits, and possibly the management of a company. This is explained in more detail in Equity Ownership. A certificate of stock is the paper evidence of the ownership of shares of stock. While the paper itself has no real value, a stock certificate undoubtedly has a value as a transferable symbol of the property right. The certificate of stock, as distinguished from the shares of stock which it represents, is considered tangible personal property.
Legends Written on The Certificates
Written conditions or “legends” on the stock certificates usually warn against the public resale of shares. A stock legend’s conditions and restrictions can help a company prevent their shares from being sold too soon or to unwanted strangers, which might harm the company.
A stock certificate frequently will contain written restrictions regarding how and when the shares of stock may be transferred. Texas law requires that any restrictions on selling or transferring stock certificates must be in writing on the certificate. For example, a small company may require that shares of stock first must be offered to the corporation or to other shareholders, giving them a “right of first refusal.” If restrictions are violated, the transfer of the property right is invalid.
Different from Stock Options
Stock certificates evidence the actual ownership of a percentage of the company, whereas stock options evidence the right to purchase shares of stock at some future date. Stock options are discussed in Equity Ownership.
Do You Need Advice?
If you need legal advice about what restrictions you must honor or if you are involved in a shareholders’ dispute, don’t wait until you are in over your head. Get legal advice from a stock expert sooner rather than later. Feel free to give us a call for an appointment.