LEGAL VIEWPOINT: Disposal of shares – By Dr AbdelGadir Warsama Ghalib, Legal Counsel Bahrain

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Dr AbdelGadir Warsama Ghalib, Legal Counsel
A shareholder in a commercial company, being an individual person or corporate person, is mostly fee to dispose of his shares for any reason and at any time. Disposal of shares in public joint-stock companies normally takes place in the concerned stock market and in compliance to the procedures explained therein based of the relevant laws and regulations. Any interested potential buyer is eligible to hold the shares and hereby there is a new shareholder in the company.
Most shareholders acquire or look to own an investment channel to increase their financial sources and investment capabilities. We believe that shareholders acquire shares and or, in some cases, bonds because they provide a good and fruitful investment opportunity especially if taken wisely, timely and carefully through established proper avenues. Worldwide, many are making good profits from this activity..
As stated above, shareholders are mostly free to do whatever they like and wish with their shares and or bonds unless there are legal or regulatory restrictions. In this particular respect, the Company Law  specifically provides for an exception to the general rule of absolute freedom to dispose or deal with shares.
According to the law, in many countries, no company is allowed to purchase its own shares except in one case and under one condition, that is when this purchase is done for the reduction of the capital of the company, or alternatively, to amortize the shares of the company.
I think the reason and rationale behind the legal restriction, is to keep the capital or the number of shares of the company intact without reduction, because the ultimate goal of any business is to increase the capital and maintain the equity shareholding.
Some believe that there is no reason for this restriction and companies and likewise the shareholders should be fully free in this respect. As I recall, Abu Dhabi authority for the securities & commodities market took this initiative to boost trading and investment activities in the corporate sector..
An important procedural point, in this connection, is that reduction of the capital of any company requires an extra-ordinary general assembly. This means the management of the company is not allowed to purchase the shares unless there is a clear resolution or decision taken at the meeting.
It is important to mention here that increasing the capital (as decreasing the capital) of the company requires, also, according to the provisions of the commercial companies law an extra-ordinary general assembly.
As a rule, and as mentioned, companies are not allowed to purchase their shares unless, and in certain circumstances, for reduction of their capital or its amortization. However, even if these happened, the shares acquired by the company shall not have voting rights at the general assembly. This provision makes such shares of no material or tangible benefit, because they have no voting powers and shares with no voting powers cannot bite nor play any significant role during meetings or otherwise.
An additional legal restriction on companies is the point that the companies, as an institution, are barred and not allowed to, pledge shares. This right of pledging shares is to be exercised and vested only on shareholders. The commercial companies are not allowed to undertake pledging in relation to shares,  almost for the same reasons highlighted above and so as to keep such shares free from any risk whatsoever.
It is important for shareholders to be aware that the company law gives them legal protection against certain actions. This is clear in the law, where it is stated that neither the ordinary general assembly of the company nor the extraordinary general assembly are authorized to take, add or amend any of the legal rights given to the shareholder by the law or the Articles of Association of the company.
The rights protected by the law and the  Articles of Association are many, such as the right to attend meetings, to participate in the discussions and ultimately, to exercise the voting powers in proportion to the acquired shares, receive dividends, examine books, question the Board or executive management.. etc. Holding shares and their volume is the cornerstone in this respect and determines the strength of the bond between the company and the current shareholders.