As I mentioned yesterday, every holder of shares is entitled to a signed certificate pursuant to California Corporations Code Section 416(a) (unless the corporation a system for issuing, recording and transfering uncertificated shares pursuant to Section 416(b)). Does that mean that shares are not validly issued until a stock certificate has been properly executed and delivered? The Corporations Committee of the Business Law Section of the California State Bar seemed to think so. The Committee in its 2005 report on legal opinions in business transactions wrote:
In addition, the opinion confirms that the shares were issued for proper and sufficient consideration and are evidenced by appropriate certificates that have been properly executed and delivered, or, in the case of uncertificated shares, that the Company has otherwise taken sufficient steps to grant full shareholder status to the purchaser of the shares.
This statement doesn't seem entirely accurate. If, for example, a corporation effects a stock split, it seems to me that the additional shares resulting from the split are issued the moment that the stock split is effected. I don't believe that the resulting shares are not validly issued simply because the stock certificates have not been signed and delivered. The Committee may have reached the same conclusion because this statement was dropped from the October 2007 printing of the 2005 Report.