Share

Term clarification: Share in a legal context

The term “Share” comes from English and translates to “portion”, “share” or “part”. In the legal context, share has a variety of meanings, which vary greatly depending on the area of law and the context. The term is particularly significant in corporate law, securities law, and copyright law. In the following, the different legal meanings, forms, and special features are comprehensively presented and explained.

Share in corporate law

Definition and legal nature

In corporate law, a share refers to an interest in a capital company, such as a stock corporation (AG), a limited (Ltd.), or a comparable legal form. The share represents the notional portion of a person (partner, shareholder) in the company’s assets and entails certain rights and obligations vis-à-vis the company.

Key characteristics

• Equity and asset interest: A share represents a fixed fraction of the company’s share capital.
• Membership interest: Whoever owns a share acquires the status of shareholder or member with all associated rights and obligations.
• Transferability: The share is generally transferable, although restrictions may be stipulated by law, articles of association, or shareholder agreement.

Types of shares

• Ordinary Shares: Confer voting and dividend rights.
• Preference Shares: Special preference rights, e.g. regarding profit participation or voting rights.
• Non-Voting Shares: No or limited co-determination rights.
• Registered vs. Bearer Shares: Registered or bearer interests with different transfer modalities.

Rights and obligations arising from shares

• Property rights: Entitlement to dividends, liquidation proceeds, subscription rights in capital increases.
• Membership rights: Participation in the general meeting, voting right, right to information and disclosure.
• Obligations: Contribution of capital, liability within the scope of the contribution, and duties of loyalty towards the company.

Transfer and encumbrance of shares

The transfer of a share typically requires compliance with statutory and contractual requirements. For registered shares, an endorsement or a change in the share register is usually required. For bearer shares, delivery of the certificate is generally sufficient. The encumbrance of a share (e.g., by pledging) is also possible and subject to legal regulations.

Share in securities law

In securities law, share is synonymous with stock. Here, there is a close connection between the share as company participation and the security which represents this participation.

Shares (stocks) as securities

• Certificate: The share is structured as a security that certifies the membership rights.
• Tradability: Shares can be traded on stock exchanges or over-the-counter and are subject to the regulations of securities trading law.
• Issuance: The issuance of new shares follows strict regulatory requirements (e.g., prospectus obligation).

Regulation and protection mechanisms

• Capital market law: Regulates issuance, trading, and information obligations of the company.
• Transparency obligations: Protection of shareholders and the market through disclosure obligations and ad-hoc notifications.
• Investor protection: Rules to prevent insider trading and market manipulation.

Share in international comparison

Germany

In Germany, a share generally corresponds to a stock (§ 1 AktG). Additionally, in GmbH law, the term refers to a membership interest (§ 14 GmbHG), although the English term “share” is primarily used in connection with Limiteds and international corporations.

United Kingdom

In the United Kingdom, a share as defined by the Companies Act 2006 is any “legal entitlement to a specified portion of a company’s share capital.” Shares are regularly securitized by share certificates. Transfer follows clearly defined corporate law and registry requirements.

United States

In the USA, shares are referred to as stock. Their acquisition and trading are subject to securities law, mainly overseen by the SEC (Securities and Exchange Commission). Shares can be issued as common stock or preferred stock, each with specific rights and obligations.

Share in copyright law

In the digital context, share is also used in relation to sharing (distributing) copyright-protected content (files, works). In this sense, share describes an act by which works are made publicly accessible, i.e., shared. This becomes legally relevant especially in peer-to-peer networks (“filesharing”).

Legal classification of sharing

• Making available to the public (§ 19a UrhG): Sharing copyright-protected works on the Internet is generally considered making them available to the public.
• Requirement for permission: Sharing without the consent of the rights holder often constitutes copyright infringement.
• Liability questions: Those who share content may be exposed to claims for injunctive relief, damages, or removal.

Tax aspects of shares

Taxation of share transactions

• Capital gains tax: Profits from the sale of shares are subject to capital gains tax and, where applicable, withholding tax.
• Investment income: Dividends from shares constitute taxable income.
• Inheritance and gift tax: The transfer of shares by inheritance or gift is in principle subject to taxation.

Valuation of shares

The valuation of shares is based on business and commercial law principles, for example at market value or, for unlisted shares, using the earnings value method. This is particularly relevant in tax scenarios (e.g., restructurings or inheritance situations).

Conclusion

The term “share” in law unfolds a multitude of meanings and is of central importance in various areas of law. From participation in companies and structuring as a security to copyright issues, the share plays a significant role both nationally and internationally. The transfer, encumbrance, and taxation of shares, as well as the resulting rights and obligations, are subject to sometimes complex, detailed statutory requirements that must be carefully examined in individual cases.

Frequently asked questions

What legal requirements must be met when a company issues shares?

The issuance of shares (stocks) by a company is subject to strict legal requirements, which are based primarily on the relevant national company law and, where applicable, on European regulations. Before issuing shares, it must first be checked whether the company is authorized to do so under its articles of association and the applicable national company law (e.g., the German Stock Corporation Act). As a rule, the issuance of new shares requires a resolution of the general meeting or shareholders’ meeting, usually passed by a qualified majority. Additional formalities such as notarization of the resolution, registration in the commercial register, and often the preparation and publication of a securities prospectus are required if the shares are to be offered to the public or admitted to trading on a regulated market. The pre-emptive rights of existing shareholders must also be taken into account. Depending on the jurisdiction, further requirements such as notification to the supervisory authority (e.g., the Federal Financial Supervisory Authority, BaFin, in Germany) may apply. Violation of these requirements can result in serious civil and criminal consequences, including the nullity of the capital increase or the invalidity of the share issuance.

What legal obligations does the company have after issuing shares?

After the valid issuance of shares, the company must ensure the proper maintenance of the share register or a list of shareholders. It is obliged to properly document new shareholders and guarantee them the rights arising from the shares (e.g., participation and voting rights at the general meeting, dividend rights). Additionally, tax obligations must be observed, especially concerning the disclosure of shareholdings and distributions to the tax authorities. Regular notifications to the commercial register are also required, and changes in voting rights may trigger notification duties under § 33 WpHG if the company is listed on the stock exchange. If the company violates these obligations, shareholders may have claims for damages and regulatory sanctions may be imposed.

What rights of protection do minority shareholders have in connection with shares?

Minority shareholders are protected by a variety of statutory mechanisms to prevent abuse by majority shareholders. This includes, in particular, the minority quorum, which allows a certain minority to request the convening of a general meeting or special audits. § 122 AktG specifies the required quorum for this purpose. Furthermore, the so-called principle of equal treatment (§ 53a AktG in Germany) protects all shareholders against arbitrary unequal treatment. There are also special information and compensation obligations to protect minorities in the context of capital measures, such as capital increases or squeeze-outs. Violations may lead to the contestability of general meeting resolutions or claims for damages.

How is the legal transfer of shares effected in the course of a sale?

The legal transfer of shares (stock transfer) depends on the form of the share. For bearer shares, typically the agreement on transfer and the delivery of the share certificate are sufficient; for registered or restricted registered shares, additional entries in the share register are required, and for the latter, company consent is also needed. For uncertificated shares (e.g., book-entry shares), transfer usually takes place by entry in the register. In the case of membership interests in a GmbH, notarization of the purchase and transfer agreement is mandatory (§ 15 GmbHG). For listed shares, the requirements of the Securities Trading Act (WpHG) apply, particularly regarding transparency and reporting obligations under § 33 WpHG after certain holding thresholds are exceeded. Regulatory or foreign trade approval requirements may also need to be observed depending on the specific case.

What legal risks arise from incorrect documentation or maintenance of the share register?

Errors in the documentation and maintenance of the share or shareholder register can have serious legal consequences. An improperly maintained register may result in share transfers not being recognized or the legal position of shareholders being called into question. This can lead to challenges to shareholder resolutions or the invalidity of transactions. In addition, members of the management board or management may be personally liable for damages arising from such errors. For listed companies, breaches of duty can also result in fines and criminal consequences if, for example, notifications are omitted or incorrectly made.

What notification and disclosure obligations exist for acquirers after acquiring shares?

After acquiring shares, various notification and disclosure obligations may arise. Once certain shareholding thresholds are exceeded (e.g., 3%, 5%, 10%, etc., pursuant to § 33 WpHG under German law), the acquirer is required to notify both the company and BaFin (in the case of listed companies) of the acquisition. There may also be disclosure requirements under foreign trade and investment control law, particularly for the acquisition of companies and for foreign investors. Violations of these obligations are often punishable by significant fines and can lead to the reversal of transactions or suspension of voting rights.

Under what legal conditions can shares be redeemed or cancelled?

The redemption (also known as withdrawal or amortization) of shares is only permitted under certain statutory and constitutional conditions. Under German law, the conditions for redemption must be stipulated in the company’s articles of association (§ 237 AktG or § 34 GmbHG for GmbH interests). In principle, a resolution of the general or shareholders’ meeting is required. For redemption against the shareholder’s will, the law imposes strict substantive and procedural limits, such as the need to pay fair compensation. Redemption without a statutory or constitutional basis is void. Special rules apply for treasury shares or in the context of squeeze-outs.