As part of a shareholder dispute in a company that is managing a gas station, a contention was made that the transfer of shares carried out in each of the shareholders groups was invalid because it did not receive the approval of the board of directors. However, one of the transfers was reported by the company to the Companies Registrar.
The Court held that the transfer of the shares that was not reported to the Companies Registrar is void but the one reported is valid. Shares are the property of the shareholder and therefore the shareholder may free transfer them to another subject to conditions set forth in the articles of association for the transfer of shares, which conditions are only for the protection of the company. Thus, for example, it is possible to set conditions that will ensure the solvency of the recipient of the share, conditions that will prevent the purchase of the shares by those who may harm the company, etc. It is customary to assign discretion to the company's board of directors to approve or refuse the recording of any share transfer, but this authority is intended to protect the company and therefore the board of directors must consider only considerations which purpose is to protect the company and must act faithfully and in good faith for the benefit of the company. Even when certain documents are required for the transfer of shares, the purpose of such documents is to allow the board of directors to examine the validity of the transfer, the identity of the transferee and the other conditions established for the transfer of shares in the company, before making its decision to approve or refuse the transfer. Here the articles of association stated that the members of the board of directors may refuse the transfer of shares to "a person they do not see fit", but this section should be read so that it does not grant unlimited discretion but rather its purpose is to allow the refusal of the transfer of shares if this would harm the company. Although in this case there was no reason justifying the refusal of the board of directors to approve the transfer of the shares, because the transfer of the shares was not sent to the board of directors for its approval, as long as it is not approved, the rights in the shares are not transferred. Nevertheless, because one of the transfers was reported by the company to the Companies Registrar, although not approved by the board of directors, this transfer is valid because the update of the registration by the company facilitates the transfer of the shares despite lack of approval of the board of directors.