Meaning
Statutory provision in the Cayman Islands governing the transfer of shares and the power of directors to refuse registration. The cayman companies law section 46 establishes that shares are personal estate and capable of being transferred in the manner provided by the articles of association. It forms the basis for the legal finality of a share transfer once the entry is made in the corporate records.
Registration Requirement
Legal title only passes when the name of the purchaser is entered into the register of members. Until this act occurs, the seller remains the legal owner despite the execution of a stock transfer form or the payment of the purchase price. The statutory framework ensures that the company always has a definitive list of members for the purpose of notices and voting.
Transfer Validity
Directors must exercise their power to refuse a transfer in good faith and for the benefit of the company. Any restriction on the right to sell shares found in the articles of association remains subject to the limitations of the cayman companies law section 46 regarding the nature of property. A failure to register a valid transfer can lead to a court order for the rectification of the register.
This protection ensures that share ownership cannot be arbitrarily frozen by management.
Board Discretion
Clauses in the articles that grant absolute discretion to directors are common in private entities to prevent the entry of competitors. The exercise of this discretion must avoid arbitrary or capricious motives. If a board denies a transfer without a valid reason related to the corporate interest, the aggrieved party may seek a court order to compel the update.
The section provides the mechanism for challenging such decisions in the Grand Court.
