Due diligence checklist: business purchase

When do I use this document?

• if a shareholder has lost its original share certificate or it has been destroyed
• if applicable, alongside a transfer of the shares covered by the lost or destroyed original certificate

What are the key features?

• different forms of indemnity, depending on whether the shareholder is also transferring shares
• alternative forms of indemnity, depending on whether the shareholder is an individual or a company

What else do I need to know?

What is a share certificate?

A share certificate is a document evidencing ownership of shares in a company. By law, shareholders are entitled to receive this certificate when they acquire shares, either through allotment or transfer.

What happens if a share certificate is lost or destroyed?

If a shareholder loses or destroys their certificate, they can ask the company for a replacement. To safeguard itself, the company will usually require a lost share certificate indemnity. This is a legal undertaking under which the shareholder agrees to cover any losses the company might face by issuing the replacement.

What risks does the indemnity protect against?

The indemnity protects the company from risks such as:

1. Duplicate Claims: If the original certificate reappears, someone else might claim ownership, causing disputes or financial loss.
2. Fraudulent Claims: A person could falsely claim to have lost the certificate and misuse the replacement, for example, by attempting to sell the shares unlawfully.
3. Administrative Errors: Mistakes in issuing a replacement or registering a transfer without the original certificate could lead to legal administrative errors.
4. Legal Liability: If a replacement certificate or transfer is improperly handled, the company might be held responsible for resulting losses.