Legal Updates

Transfer of shares carried out in breach of the company’s bylaws is invalid

September 22, 2019

A shareholder contended, inter alia, that another shareholder had taken over his shares and recorded them under his name in the Companies Registrar without any authority.
The Court accepted the claim stating, inter alia, that the transfer of shares was in beach of the company's bylaws and the law and is therefore invalid. Under Israeli law, a transfer of shares is made by one of the following: A transfer deed signed by the parties is served to the company and the requirements of the company's bylaws are met; By a Court order to amend the registry; It was shown to the company that legal conditions exists for the transfer of the right; Other condition in the company's bylaws was met which is sufficient to change the rights at the register of shareholders. Here, the company's bylaws expressly stated that transfer of shares in the company is contingent upon obtaining board approval for the transfer and the existence of a transfer deed duly signed by the transferor and the transferee. Because the company's board of directors did not approve the transfer and neither did a duly signed deed exist, it is a material defect which nullifies the transfer of the shares and therefore the transfer is revoked.