The Company Signatory Without Authority
A notary is asked to authenticate a share transfer and a shareholders' resolution for a closed Bahraini company. The transferor signs through a representative, Yusuf, who presents a commercial registration extract showing him as 'authorised signatory' and a resolution purportedly passed by the board appointing him. The resolution is signed by two of the three shareholders. The company's articles, also presented, require shareholder approval for any transfer of shares and give existing shareholders a right of first refusal. The buyer is a foreign investor. The notary notices the resolution does not mention the share transfer, and the articles require a 30-day offer period to existing shareholders that has not run.
1. Can the notary authenticate the transfer now? Analyse the authority, the articles, and the pre-emption requirement.
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Conclusion: No. The act should be deferred until the authority and the pre-emption process are properly documented.
Authority:
- A commercial registration entry showing 'authorised signatory' establishes that the person may represent the company in general dealings; it does not by itself prove authority to dispose of shares where the articles require shareholder approval.
- The board resolution appoints Yusuf but does not authorise this transfer. Authority must match the act. A generic appointment cannot cure a specific restriction in the articles.
- The resolution is signed by two of three shareholders. Whether that suffices depends on the articles and the company law requirements for the relevant decision. The notary must verify the quorum and majority rules, not assume them.
Articles and pre-emption:
- The articles require shareholder approval for any transfer. That approval must be evidenced, not inferred.
- The right of first refusal requires a 30-day offer to existing shareholders. That period has not run. A transfer completed now would breach the articles and could be challenged by an existing shareholder.
Steps before authentication:
- Obtain a shareholders' resolution expressly approving the transfer to this buyer, passed with the required majority.
- Evidence that the 30-day offer was made to existing shareholders and either declined or expired.
- Confirm Yusuf's authority by a resolution specific to the transfer, or have the transferor sign personally.
- Verify the foreign investor's eligibility and any regulatory approvals for foreign ownership.
Record the deferral and the conditions in the file.
2. The buyer offers an indemnity letter from the seller covering 'any defect in authority or pre-emption'. Does that allow the notary to proceed?
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No. An indemnity is a contractual promise between the parties; it does not cure a defective act or make a transfer lawful. The notary's duty is to the law and to the integrity of the register, not to the parties' commercial risk allocation.
Why it fails:
- If the transfer breaches the articles or the pre-emption right, an existing shareholder may challenge it regardless of the indemnity.
- The notary would be authenticating an act she knows to be irregular, which exposes her to liability and discipline.
- An indemnity cannot validate a resolution that was never passed or an offer period that never ran.
What an indemnity can do: it may allocate risk between the parties once the underlying requirements are satisfied, and it can support a conditional agreement pending completion of the steps. It cannot substitute for those steps.
Practical response: explain that the notary will proceed once the resolution, the pre-emption evidence, and the authority are in order, and that the indemnity can sit alongside the transaction. If the parties want to sign now, the instrument must be expressly conditional and must not purport to transfer the shares until the conditions are met.