Certificated or uncertified shares?

Unlike Canadian law, the Quebec Business Corporations Act allows shares issued by the corporation to be uncertificated. This was an important change in 2009 when the law was adopted, compared to the old Companies Act.

Where shares are issued in certificated form, a share certificate must be issued and delivered to the shareholder. The certificate contains, inter alia, the name of the shareholder, the number and class of shares held, and is signed by a officer or director of the company. When a shareholder wishes to transfer shares, the share certificate is endorsed and delivered to the acquirer, with the taking of possession of the certificate resulting in the transfer of the shares, as provided for in the Securities Transfer Act.

When the board of directors decides, by resolution, that the shares are uncertificated, the law provides that a notice must still be sent to the shareholder. This notice contains essentially the same information that must be included on a share certificate.

The distinction between certificated and uncertificated shares lies in the procedure for issuing the shares and transferring them. When the shares are uncertificated, the existence of these shares is not evidenced by a registered certificate delivered to the shareholder, but by the mere registration of the transaction in the company's securities register. Thus, once the issue of shares has been authorised by the Board of Directors, the issue is completed by its sole entry in the company's securities register. As for the transfer of shares, the Securities Transfer Act stipulates that the mere registration of the transfer of shares by the company results in the "delivery" of the shares, and therefore their transfer. However, the company cannot register a transfer without first obtaining transfer instructions from the transferor, in the same way that the company cannot register a transfer of certificated shares without the shares being endorsed.

It seems therefore that uncertificated shares provide an interesting flexibility, especially at a time when paper is less and less used, and commercial transactions are increasingly dematerialised and done remotely.