Legal Updates

Sole signatory rights do not entitle a shareholder to make private transactions in company assets

June 2, 2021

An owner of an entrepreneurial company which owns several offices for sale and a purchaser entered into an exchange agreement (barter) according to which the owner sold 4 offices of the company in exchange for the transfer of ownership in the purchaser's apartment to the owner’s name.
The Court held that there is no way to enforce the exchange agreement between the parties as the offices promised to the purchaser are not privately owned by the owner but are owned by the company. A basic rule in property law is that a person can not transfer to another more rights than those actually held by him. Shareholders in a company do not have rights in the company's assets and a shareholder who holds exclusive signatory rights on behalf of the company may make transactions on the company's behalf, but does not have a personal right in the company's assets. Even if in practice he is entitled to sign and execute agreements on behalf of the company and able to transfer the assets in the name of the other party, he can only do so on behalf of the company, and the consideration for such transaction must be paid to the company, and not to the shareholder privately. Here, the offices are owned by the company and therefore, and despite the fact that the owner has exclusive signatory rights in the company, he does not have the right to make private transactions using the company's assets and cannot keep his part of the exchange agreement - a fact that leads to such agreement being unenforceable.