What is required to enforce transfer restrictions against third parties?

• A. Actual knowledge or notation on share certificate
• B. Court order
• C. Public notice
• D. Written consent of board

Answer: (A)

The key idea is notice to the transferee. A transfer restriction can bind a third party only if that party actually knows about the restriction or has constructive notice from a notation on the stock certificate. When the share certificate itself shows the restriction, any purchaser or bearer of that certificate is deemed to have notice of the restriction, so they must comply. If there is no knowledge and no certificate notation, a recipient may take free of the restriction, which is why enforcement against such a third party isn’t automatic.

The other options aren’t required to bind third parties: a court order isn’t needed to enforce against someone who has notice (court action can compel, but it’s not the basic requirement to bind), public notice isn’t the standard method (notices aren’t typically published publicly to bind transferees), and consent of the board isn’t required to bind a transferee who has knowledge or a properly noted certificate.