Share sales are subject to Shareholder Agreements that protect a company and the individual shareholders by restricting the transfer of shares. In effect, this makes selling shares subject to a cascade of legal agreements, documents and processes – all stemming from the original shareholder agreement’s terms and restrictions.
Shareholders Right of First Refusal:
Most shareholder agreements contain a ‘right of first refusal’ clause. This means you need to offer your shares to the other shareholders first. Only once they have all refused to buy, can you then offer them to a third party. However, even at this stage, you most likely will not have the freedom to sell to whomever you choose. Your proposed buyer will need to be approved by the other shareholders and agreement drawn up approving sale to a third party, the new buyer (if known), along with an official waiver of their first rights of refusal.
Share Sale Agreement:
The next step is the agreement drawn up for the vendor and buyer in the share sales – a Share Sale Agreement. This may be quite detailed, depending on, and including terms agreed on in the original Shareholders Agreement, and the terms of the company’s MOI (Memorandum of Incorporation).
Details will also include the number of shares being sold, the price of those shares, the method and terms of payment, the specifics of when and at what location the transfer of shares will take place, as well as any warranties or that must be supplied, or terms of sale agreed on. This agreement, approved by shareholders, may need to be finalised by the company’s Board of Director’s.
Transfer Forms and Share Certificates:
A share transfer form must be completed for the transfer, and once the transfer has taken place, the new shareholder will be issued with their share certificate, and your share certificate will be cancelled.
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