Securities as Property

In one line

A share is not a piece of the company's property and not a debt owed by it; it is a distinct species of movable property, transferable in the manner the articles provide, evidenced by a certificate that is only prima facie proof of title, and identified by a distinctive number unless it is held in demat form.

In exam wording: under section 44 the shares or debentures or other interest of any member in a company shall be movable property transferable in the manner provided by the articles of the company.

Why the law has this at all

Two questions had to be answered before anything else in this module could work, and s.44 answers both in one line.

What kind of thing is a share? The company owns its assets; the member owns the share. Since Bacha F. Guzdar v. Commissioner of Income Tax, Bombay the answer in India has been settled, and the reasoning is worked in [The Company as a Legal Person]: a shareholder has no interest in the company's assets, so a share cannot be an undivided slice of the company's property. Section 44 supplies the positive answer. A share is movable property in its own right, a bundle of statutory and contractual rights against the company measured by the articles.

How does it move? By transfer in the manner provided by the articles. That single phrase is why a private company's articles may restrict transfer, why a public company's securities are freely transferable under s.58(2), and why the formalities of s.56 exist at all.

Everything else in this chapter is a consequence. If a share is property, it needs to be identified, hence s.45's distinctive number. If it is property held against a company, ownership needs to be evidenced, hence s.46's certificate. And if the register rather than the paper is the real record, the certificate can only be prima facie evidence, which is exactly what s.46(1) says.

Section 44: the nature of a share

The shares or debentures or other interest of any member in a company shall be movable property transferable in the manner provided by the articles.

Movable property. A share is goods for some purposes and an actionable claim for none; it is a separate species of movable property. Three practical consequences follow. It can be owned, sold, pledged, mortgaged and bequeathed. It devolves on death as movable property, which is what makes transmission under s.56(2) work. And it can be attached in execution, because it is property of the judgment debtor.

Or other interest of any member. The words are wider than shares and debentures, and they catch the interest of a member of a company not having a share capital, such as a company registered under s.8 limited by guarantee.