Transfer of shares and formalism

When it comes to transferring shares, whether by sale, donation or otherwise, it is important to respect the rules set out in the law in order to have a valid transfer. For corporations incorporated under Quebec law, the rules surrounding transfers are set out in the Securities Transfer Act, while for federal corporations, the rules are set out directly in the Canada Business Corporations Act.

Regardless of whether the company is a Quebec or federal corporation, the basic rule is the same: share certificates must be endorsed and delivered to the purchaser. The Securities Transfer Act defines endorsement as follows:

"endorsement" means the affixing of a signature, alone or together with other words, to a registered security certificate or to a separate document for the purpose of transferring or obtaining redemption of the security

The signature of the person transferring the shares must therefore be affixed either to the back of the certificate, where a transfer form is generally found, or on a separate document, which must be given to the purchaser with the share certificate. If the share certificate is not endorsed, the corporation must refuse to register the transfer in its records and to grant shareholder status to the purchaser.

The lack of endorsement of the share certificate may not be fatal in some cases. In Mennillo v. Intramodal Inc. 2016] SCC 51, the Supreme Court held that the registration of a transfer of shares by the corporation despite the absence of an endorsement does not necessarily constitute an abuse of process warranting the cancellation of the transfer. The Court noted that it is possible, as between the parties, to effect a transfer of shares without an endorsement, although such a transfer would be subject to annulment by the court before the expiry of the 3-year limitation period.

Nevertheless, it is essential to respect the rules of formalism to ensure that corporate transactions are valid and not subject to nullity.