The High-touch Legal Services® Blog…for Startups!

© 2009-2021 Dana H. Shultz

Printing Legends on Share Certificates – Why and How

Sample Share Certificate to illustrate printing legends on share certificates

Sample Share Certificate with Legend from Attorneys Corporation Service, Inc.

Last year, I wrote about the importance of a corporation’s placing appropriate legends on share certificates (Why Do We Need a Corporate Records Book?) and likewise for limited liability company membership certificates (Should My LLC Issue Membership Certificates?). This post provides more details about why legends are required and how to print legends on share certificates. (Although I am using corporation-specific terminology, the considerations are similar for LLCs.)

When including legends on share certificates for clients, one of the most important states that the shares have not been registered under state or federal securities laws.  (I have the company that provides the certificates include it when the certificates initially are printed.) The reason: To put the shareholder on notice that, under applicable securities laws, the shares cannot be transferred unless certain circumstances are satisfied. Here is an example:

THIS SECURITY HAS NOT BEEN REGISTERED OR QUALIFIED UNDER THE SECURITIES ACT OF 1933 OR THE SECURITIES OR BLUE SKY LAWS OF ANY STATE AND MAY BE OFFERED AND SOLD ONLY IF REGISTERED AND QUALIFIED PURSUANT TO THE RELEVANT PROVISIONS OF FEDERAL AND STATE SECURITIES OR BLUE SKY LAWS OR IF AN EXEMPTION FROM SUCH REGISTRATION OR QUALIFICATION IS APPLICABLE.

If the shares are subject to contractual restrictions on transfer that were agreed to at the time the shares were issued, then it is important that the various legends on share certificates include the legend specified in the agreement. The reason: A third party who receives a certificate without the legend and without knowledge of the restrictions may not be bound by them! Here is an example:

SALE, TRANSFER, PLEDGE, ENCUMBRANCE, HYPOTHECATION, OR DISPOSITION OF THE SHARES REPRESENTED BY THIS CERTIFICATE IS RESTRICTED BY THE PROVISIONS OF A COMMON STOCK PURCHASE AGREEMENT AMONG THE SHAREHOLDER AND THE COMPANY OF _______ __, 201_. ALL PROVISIONS OF THE AGREEMENT ARE INCORPORATED BY REFERENCE IN THIS CERTIFICATE. A COPY OF THE AGREEMENT MAY BE INSPECTED AT THE PRINCIPAL OFFICE OF THE CORPORATION.

Because this legend is prescribed by the applicable agreement (the printer’s standard-form legends typically will not suffice), I add it myself using MS Word.

Sometimes, a given corporation’s legends on share certificates take up too much space to fit on the front. In that case, legends can be placed on the back, and there should be a legend along the line of the following on the front:

TRANSFER OF THE SHARES REPRESENTED BY THIS CERTIFICATE IS RESTRICTED. SEE LEGEND ON REVERSE SIDE.

Dana H. Shultz, Attorney at Law  +1 510 547-0545  dana [at] danashultz [dot] com
This blog does not provide legal advice and does not create an attorney-client relationship. If you need legal advice, please contact a lawyer directly.

Why Do We Need a Corporate Records Book?
  1. 11/25/2012 | 7:47 am Permalink

    These stock/LLC certificates are sold in blank in various styles and colors. They can be filled in with names/amounts on a typewriter (a pain) or a carefully calibrated printer (so that the printed information falls in the appropriate blanks in the form). The legends are typically printed on the back, which is easily accomplished with any printer since the back of the certificate is blank (or mostly blank; it may have a form of stock power printed on the back). It seems curious to “have the company that prints the certificates include” the legends. It actually seems curious to have a company print the certificates at all, given the delay and expense as compared with using the blank forms I am familiar with.

    • 11/25/2012 | 8:42 am Permalink

      I see that my use of the word “print” in the quoted portion of the post was misleading. I was referring to printing of the form certificates; I have changed that word to “provides”.

      As concerns restrictive legends, I have the supplier print the legend pertaining to no federal or blue sky registration because that general-purpose legend is satisfactory. There is no significant delay associated with this step – it is accomplished at the same time that the name of the corporation and the authorized number of shares are printed on the certificate, and the certificates and corporate seal are included in the corporate records book.

      I print other legends on the certificate myself, because they need to be more client-specific than the legends the supplier can provide.

  2. Trackbacks & Pingbacks

  3. The High-touch Legal Services? Blog ? For Startup Companies » Why Do We Need a Corporate Records Book?

    […] Related post: Printing Legends on Share Certificates ? Why and How […]

  4. The High-touch Legal Services? Blog ? For Startup Companies … | ocinefokede

    […] Source: https://danashultz.com/2011/08/25/printing-legends-on-share-certificates-why-and-how/ […]

  5. Quora

    How does investing into an LLC work?…

    No one can give you a detailed how-to answer on Quora that will allow you to bring your investors on board properly and with appropriate documentation. This is not a DIY project – you need a lawyer’s help. Answering your questions directly: * While th…