The Importance of proper documentation for transfers and issuances of shares in Guatemalan societies

By: Estefanía Ortuño

When a corporation is incorporated, it is created with the intention of its permanence in time. This means that the spirit of a corporation, generally, is to survive even after the death of one of its shareholders. Therefore, the succession of shares will obviously occur sooner or later. Likewise, during the life of the Company, not only shares are succeeded by death, but also new shares are issued when contributions are made to the Company’s capital, and they can be transferred to a new shareholder by means of purchase, sale, donation, assignment, among others.

In any of the above cases, it is of utmost importance that the Company maintains control and material supports of all acts and contracts involving transfer or change of control of the shares. The main material supports that must be updated and correctly issued are:

Share Registration Book

Share certificates

Sessions of the Administrative Body

General Shareholders’ Meetings

Notices of share issuance

This book records the issuance of new shares, their transfers, cancellations, disposals and encumbrances. This is the book that is in control of the Company and that allows to “tell the story” of the transfer of a share.

They are the property title of each shareholder, documenting the amount of shares owned by each one. It also documents any endorsement of shares made.

These are the Minutes that document the approval, by this Body, of the issuance of new shares, as well as the transfers of these.

These are the Minutes that document the exercise or waiver of the preferential right of subscription of new shares held by all shareholders, as well as the right of first refusal in the transfer of shares by another shareholder (in the event that the Company regulates this right).

It is the notice given to the General Mercantile Registry of the Republic, on the issuance of new shares, and which is registered in said institution. This notice is the support before third parties of the Paid-in Capital (amount of outstanding shares)..


These are only some of the documents in which the issuance of new shares or the transfer of shares must be recorded; it should be clarified that there may be more, such as the contracts entered into by the parties to document the transfer of shares.

Observing the above elements in isolation, it is not possible to understand the connection between them and the importance of documenting the transfer history of a share. However, when an interested third party wishes to acquire part of the Company’s shares or buy the Company (M&A), it performs a Due Diligence of the Company, and if these supports are not issued or updated, contingencies such as the following stand out notably:

The incorrect issuance of the Share Registry Book, which does not allow determining who the current shareholders are or if there is a right attributable to any third party, especially on the Company’s profits.
There are annotations in the Share Registry Book on the issuance of new shares, however, there is no support in the Meeting of the Board of Directors or Shareholders’ Meeting where such issuance is approved, so there is no certainty on the exercise or not of the preferential right of subscription of new shares by the other shareholders.
There are notices of issuance of shares for a Paid-in Capital that is not documented in share certificates, Share Registry Book, Meeting of the Administrative Body or General Shareholders’ Meeting, so there is no certainty about the right of ownership of the shares to be issued.

In relation to this issue, some articles that should be emphasized are: Article 99 of the Code of Commerce establishes the following: “Article 99. The shares into which the capital stock of a corporation is divided shall be represented by certificates that will serve to accredit and transmit the quality and rights of partners…”. This precept establishes the form in which the Paid-in Capital of the Company must be documented, and indicates that the share certificate is the means by which the quality of shareholder and all the rights that correspond to him are accredited, as well as the transmission of these.

On the other hand, Article 128 of the same legal body states: “Article 128.- Transfer of Shares. Nominative shares are transferable by means of endorsement of the title that the interested party, in order to be considered as a shareholder, shall register in the corresponding book”. This article indicates the supports in which the endorsement and the annotation of the transfer of shares must be recorded, these being the share certificate and the Company’s Share Registry Book, documents that validate the quality of shareholder of a certain person.

Therefore, a correct documentation of the history of transfers and issuance of shares, the issuance of share certificates and their corresponding endorsements, the documentation in the Administrative Body and/or in the General Shareholders’ Meeting, and the issuance of the respective share issuance notices, is of utmost importance. This, not only for compliance with applicable regulations, but also as a good corporate practice to avoid contingencies for the shareholders themselves against third parties that may claim property rights within the Company, or when entering into contracts with third parties interested in acquiring shares, as explained above. Therefore, if you consider that your Company may have any of these contingencies or disorder in the organization of its shares or Corporate Books, I suggest you to contact us so that we can carry out the investigation and analysis of the case, and help you to determine the solutions so that your Company is healthy in this important area.