When Stock Certificates Disappear - Weiss Attorneys at Law

Personal LiabilityWhen operating a corporation, it is important to observe corporate formalities.  This will ensure that the corporation protects the individual shareholders from the corporation’s liabilities but it can also protect shareholders from costly mistakes.  In a recent case Lamar Moore et. al. v. Armed Forces Bank, N.A., et. al. a descendant of a shareholder of a company tried and failed to get stock certificates reissued in his or his mother’s estate’s name.

The Plaintiff bought five percent (5%) of a company, Armed Forces Bank, over thirty years ago.  He made a deal with another man who was buying Armed Forces Bank at the time to contribute $180,000 for that 5% interest in the bank.  The plaintiff later agreed to transfer that 5% interest in the bank as part of a separation agreement when he was divorcing his wife.  He informed the bank that he was planning to transfer the stock to his wife but never took any further steps to transfer the stock.  The plaintiff’s then ex-wife later passed away and her son and executor of her estate could not find stock certificates and was forced to file a lawsuit to get new stock certificates issued.

This problem could have been avoided if the plaintiff had endorsed his stock certificate over to his wife when the separation agreement was final and recorded the transfer on the books of the corporation.  The corporation would then have issued a new stock certificate to the Plaintiffs’s wife which her personal representative could have dealt with after her passing.

The lawsuit by the Plaintiff and his son to get new stock certificates issued was ultimately dismissed.  Among other counts they attempted to use a provision of the Uniform Commercial Code § 400.8-405 that allows owners of certified securities, in this case the stock certificates, to seek replacement certificates.  The replacement certificates were not ordered to be issued because the plaintiffs did not meet all the requirements of the UCC section.  They did not post the bond required in order to have the new stock certificates issued and so their claim was dismissed.

This case is a good reminder that shareholders should make certain to observe corporate formalities and properly document transactions between the owners and the corporation when they are owners of a small business.  Stock transfers and other transactions between shareholders and the corporation should be documented in meeting minutes or consents for regular meetings or whenever the corporation takes a special action that requires approval of the Board of Directors or the Shareholders.  This type of maintenance can avoid costly mistakes.

Weiss Attorneys at Law advises both newly formed and established corporations on a variety of corporate matters including ensuring that the company is properly observing corporate formalities.


Matt Schaper Business AttorneyMatthew S. Schaper is an attorney with Weiss Attorneys at Law (www.weisslawstl.com). His practice primarily includes representing small and medium-sized businesses and individuals in corporate, real estate, contracts, finance, commercial transactions and tax matters. He also represents clients in Missouri state and federal courts.  He can be reached at 314-588-9500 or mschaper@weisslawstl.com.

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