Chapter 17 - § 17.8 • SECURITIES TRANSFERS

• Jurisdiction: Colorado

§ 17.8 • SECURITIES TRANSFERS

In order to obtain the full measure of benefits arising from its public status, the public corporation must establish efficient and orderly procedures for the transfer of its securities. Lack of such procedures may impair the marketability of the company's securities and result in a price reflecting less than their full value. Not only does such a situation disadvantage the security holders, but it also lessens the company's ability to realize the full value of its securities in acquisitions, mergers, and other corporate purposes for which they may be used. The two principal functions in assuring the marketability of securities are the transfer function and the registry function.

The task of the transfer agent is to handle the physical aspects of security transfer. The agent receives the certificate being sold, verifies its validity, cancels it, and issues a new certificate to the transferee. For corporations whose securities are frequently traded, a professional transfer agent is a virtual necessity if confusion in the transfer process is to be avoided.

The registrar's function is essentially one of bookkeeping. The registrar records all transfers, ensures that certificates canceled match up with securities issued, and ensures that the total number of securities at all times is in accordance with the number authorized and outstanding. In many cases, the transfer agent also is the registrar.

The company should also establish procedures for replacing certificates that are lost, stolen, or destroyed. Professional transfer agents usually have established procedures, including the furnishing by the shareholder of an acceptable surety bond before they will issue a new certificate.

The transfer agent should be instructed to place restricted legends on the face of stock certificates representing unregistered "restricted" securities. The transfer agent should also be instructed to place "stop transfer notices" on its books with respect to such securities. In that case, when restricted securities are presented for transfer, the transfer agent knows to stop the transaction until after notifying and obtaining advice from the company. These procedures are required under present SEC policy to help establish the availability of an exemption for the issuances of securities.

Note that it is the issuer's responsibility to police its market to ensure that shares that are restricted from free trading (such as "restricted shares" defined in Rule...