A transfer restriction is a provision that blocks a stockholder from being able to transfer shares (or economic or other rights under the shares) to another person without either certain conditions being satisfied or without the consent of the issuing corporation (or both). Delaware law allows for transfer restrictions by agreement or by insertion into the Bylaws.
Transfer restrictions can be a useful tool to prevent employs, other service providers and even investors from transferring their shares to persons who don’t have a vested interest in or connection to the company.
Because of the increasing popularity of including transfer restrictions in a company's stock plan documents in order to restrict the transfer of shares held by common stockholders besides the founders, the usage of transfer restrictions in companies' bylaws has waned.