Equity Instruments

Equity Instruments


“When there is something in written, no one can dare question it” -this is a Greek quote referring to the necessity of putting all agreements in writing. It also captures, in a neat and crystal-clear way, the relationship we elders have with “tangible pieces of paper” but also the insecurity that comes with their absence. This is how we were raised: with the need to hold “paper proof” engraved to our subconscious!

Different times.

Different times, but this “entry” in our subconscious is, more or less, still with us.

Besides those “paper proofs”, in the general sense, there are some kind of “pieces of paper” that, as security instruments, have some special weight and value to them. One example would be the equity instruments. In the past, when discussing share transfers in a Stock Exchange Market, we were referring to nicely (and securely?) printed equities that “changed hands” through contracts made by the shouting pit brokers.

Just before the dawn of this millennium (when we left behind the stockbrokers and were “introduced” to brokerage firms) we started talking about “the dematerialization of shares”. Printed shares of listed public limited liability companies would gradually be replaced by a simple entry in a ledger and transfers would no longer be done in the pit, but through the Automated Integrated Trading System of the Athens Stock Exchange.

This is as far as the listed companies are concerned.

Today, in the age of technology, the “paper” -the printed document- is gradually starting to lose its value. The certification of share ownership and some tangible piece of paper could no longer remain indissociable.


The obligatory publishing of equity instruments (final, no longer temporary ones).  

The share capital of a company is divided to shares (Article 34, sub. 1, Act 4548/2018). Shares can from now on only be registered (Article 40, par. 1, sub. A). When no regulation is providing otherwise, all companies have to (Article 40, par. 3) issue and deliver to their shareholders equity instruments, incorporating one or more shares (: single or multiple equity instruments). In most cases (of issuing equity instruments that incorporate multiple shares), the company has to replace existing equities with new ones, incorporating fewer shares.

Pre-existing legislation (Article 8b, par. 3, Act 2190), provided for the right to issue temporary equity instruments. This provision no longer exists, thus the era when (in common practice) only temporary equity instruments where issued by limited liability companies, is well gone. From this point forward, we will only have permanent equity instruments.

In any case, shareholders have the right to decide whether they will issue equity instruments or not (Article 40, par. 4 sub. A). A decision to not issue equity instruments will result in the need to define a way to certificate who is holding ownership over the company’s shares, in order for them to exercise the rights that come with said ownership. The shareholders are the ones to choose (and state in the company’s article of incorporation) the exact way the certification of ownership of said company’s shares will take place and thus be proven. In case they do not do so, the law defines (Article 40, par.4 sub. c) that the way to prove one is a shareholder is through the data entered into the company’s Shareholders Book. Since we have entered the “paperless era”, the law gives all S.A.s (listed or not, article 34, sub. a) the freedom to choose to either issue printed shares or intangible ones -shares not incorporated in some “piece of paper” and are nothing more than an entry in a ledger.


The company’s Shareholders Book

The certification of share ownership is mainly given through the company’s Shareholders Book, which all S.A.s must keep (Article 40, par. 2, sub. 5). The shareholders’ information (full name or company name, address or seat, occupation and nationality) are registered in the company’s Shareholders Book (Article 40, par. 2, sub. 2&3). But not only that. In this Book, the number and the class of shares (i.e. ordinary, preferred, redeemable etc.) that each shareholder owns is registered, along with the rights they have on them and the rights that derived from them (i.e. full or bare ownership, usufruct, voting, receiving dividends etc.).

Experience has shown that the company’s Shareholders Boos is a rather “sour subject” for S.A.s: Sometimes it is kept, sometimes not. And the times it is kept, we are surprised (most of the times negatively) by the findings, because it is kept by people that do not know how to properly update it. The problems companies face because the Book is not properly updated are showing more and more during the past few years: the companies are now receiving more request for access to the Book’s data, by those who have the right to make such requests (e.g. banks, funds, interested investors, interested shareholders, courts etc.).

When the company’s Shareholders Book is properly kept, things are simple: Not only the company’s shareholders information are shown in it, but also the number of shares they hold and all other necessary, and specified by law, information and rights. The (commonly) improper keeping of the Shareholders Book seems to be the reason (with the law accepting it) that the certification of the shareholder capacity cannot exclusively rely on the Book’s entries (article 40, par. 4, sub. c). In case of emergency (when there is simply no relevant entry in the Book, or there is an entry that is wrong or incomplete) the shareholders can provide any other document they hold, that is stating or proving their shareholder capacity and the relevant rights that come with it.


Keeping the company’s Shareholder Book in an electronic format

The very important for the company and the shareholders keeping of the Shareholders Book does not have to be done in paper. According to law (article 40, par. 2, sub. 4), the Book can be kept electronically by the company itself or by a third party. The keeping of the Book in an electronic format by the S.A. itself will, most likely, not solve the problems that have since this day been arising by the Book being held in a tangible paper format.

Third parties that are allowed (by law) to electronically keep Shareholder Books on behalf of S.A.s are credit institutions, investment companies (that specifically have that right) as well as Central Securities Depositories. Under the current conditions of the Greek market, it does not seem safe for an S.A. to opt out to let the keeping of its Shareholder Book to a bank or an Investment Services Firm. The safest solution seems to be the digital keeping of the Shareholders Book by the Central Repository of the Athens Stock Exchange, which now offers this service not only to listed, but to not listed S.A.s as well. The relevant procedure is in progress.


Keeping the S.A.’s shares in book entry form

A company’s shares, as mentioned above, do not have to be issued -and even more so, do not have to be issued in paper form. The law (article 40, par. 5) provides that the S.A.s can keep them in a book entry form. For the procedures that lead to the dematerialization or immobilization of the shares, Regulation (EU) No 909/2014 of the European Parliament and of the Council of 23 July 2014 applies.  The company’s articles of incorporation should, in any case, predefine the specific method that will be used for the issuing and keeping of the shares in a Central Securities Depository.


In Conclusion

The day we will no longer be using actual and tangible pieces of paper is not far. The new law on S.A.s has chosen to give the freedom of either issuing or not shares and, in case someone opts out for issuing shares, the choice of either issuing them on tangible pieces of paper or as intangible entries in a log. Respectively, the company’s Shareholders Book, with the special place is holds to this day, can either be held as a tangible, thick and old actual book or as an electronic log that can easily be fed data and be easily held on a computer in an office, on a cloud etc.

It seems that the value of the infamous quote “when there is something in written, no one can dare question it” seems more old fashioned by the day. All the more when it comes to S.A.s. The obsession with using tangible pieces of paper because it (supposedly) provide us with more security as well as with past practices and experiences will with not so much doubt be characterized by the younger amongst us with one, condescending word: inflexibility.

If we do not manage to be amongst those who guide the rest to the future, at least we should try to be amongst the first who walk towards the future.



Stavros Koumentakis
Senior Partner

P.S. A brief version of this article has been published in MAKEDONIA Newspaper (June 2nd, 2019).


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