Legal Updates

The determining registry of a company’s shareholders is the one hold at the company and not that at the Corporate Registrar

January 12, 2021

As part of an investment agreement in a tourism venture, that include an event venue, tents area, a restaurant and a biblical village, it was set that the investor will transfer funds against shares. The company did not record the shares, contending that criminal investigation against the investor prevents this and the investor terminated the agreement due to its breach.
The Court held that the company was obligated to record the shares under the name of the investor and that once it failed to do so, the investor was entitled to terminate the agreement. Recording in the register of shareholders is a condition for recognition of a person as a shareholder, with the determining registration in this matter being the registration conducted by the company itself, in its own registry, and not at the Companies Registrar. The obligation for such recording applies to the company, because it is the only one able to make such registration in the books under its control and if it is unable to do so, it can not continue to hold the investment funds. Here, the company and the shareholder who manages it, breached the agreement between the parties by refusing, despite repeated demands of the investor, to record him as a shareholder. Even if one accepts the company’s contention that a criminal investigation against the investor constituted an impediment to the recording of the shares in his name, if the investor's eligibility to be recorded as a shareholder is questionable, the investment money also be perceived as invalid for the same reasons and the company should have returned it. Thus, the investor was entitled to notify the company of the agreement’s termination and is entitled to a refund of all amounts invested by him in the company, including compensation from the company and the managing shareholder for breach of the agreement.