Unless the articles of incorporation of the company impose an effective restriction or the shareholder has entered into a legally binding agreement not to transfer or otherwise deal with the shares, the shareholder is permitted to sell or donate shares to anyone they so desire.
Share transfer provisions that are suitable for an organisation with two or more shareholders must be included in the articles of incorporation or a shareholders’ agreement. Clearly defined regulations ought to govern all three modes of share disposal—a sale, a gift, and the disposition of shares upon death of a shareholder. In this article, Can A Shareholder Sell His Shares To Anyone, we take a look at the process involved and the options available to you.
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What is the difference between transferring and issuing shares?
Two potential methods for selling shares in a private limited company are through the issuance of new shares or the transfer of existing shares.
The transfer of shares
A shareholder conducts a share transfer when they divest their current holdings in a company. You can thereby completely disengage from the business or release personal equity without causing a reduction in the value of the remaining shares.
Following a share transfer, the quantity and proportion of equity held by each shareholder in the company remain unaltered. The same is true of the firm’s share capital. You’re not adding more shares or capital – the ownership of existing shares is simply changing hands.
Shares may solely be transferred between individuals subsequent to the formation of a company.
Share issuance
In the process of creating additional shares, issuing shares is alternatively referred to as “allotting” shares. Shares are issued by all limited by shares companies during the formation procedure.
After incorporation, if there are insufficient existing shares to facilitate a transfer, or if distributing existing shares is simply not optimal, you may also allot new shares.
The issuance and sale of new shares enables an organisation to augment its share capital without requiring any shareholder to divest their current shareholdings.
Nonetheless, increasing the number of outstanding shares in a company results in the dilution of each individual share’s value. Because each share represents a percentage of the company, this is the case. Therefore, as the number of shares increases, the value of each one decreases.
The transfer procedure for any method of selling shares—including the allocation of new shares or the transfer of existing ones—must be executed in adherence to the regulations and guidelines specified in the articles of association and shareholders’ agreement.
So, Can a shareholder sell his shares to anyone?
The regulations and limitations pertaining to the allocation and transfer of shares are set out in the articles of association and/or shareholders’ agreement of your organisation. This includes restrictions regarding the parties to whom shares may be sold.
Frequently, model articles of association are adopted by small businesses, which contain minimal restrictions on the sale of shares. If you have model articles, you are free to sell or give away shares to anyone you want. The sole requirement is that the allotment or transfer be authorised by the director or directors.
Managing the sale of company shares if you are the sole shareholder and director entails a relatively uncomplicated process. You possess complete ownership and authority over the entire enterprise, thus there is no requirement to seek authorization from others prior to selling shares.
However, if you are one among a significant number of shareholders in a private limited company, you might discover that the articles and a shareholders’ agreement impose limitations on the manner, timing, and recipient of share sales.
How we can help
We have a proven track record of helping clients deal with the process involved in selling shares. We will guide you diligently and ensure all checks are carried out swiftly and efficiently and we firmly believe that with the right solicitors by your side, the entire process will seem more manageable and far less daunting. You can read more about the range of corporate services we offer by clicking here: https://blackstonesolicitorsltd.co.uk/corporate-legal-services/
How to Contact Our Corporate Solicitors
It is important for you to be well informed about the issues and possible implications of selling shares. However, expert legal support is crucial in terms of ensuring a positive outcome to your case.
To speak to our Corporate solicitors today, simply call us on 0345 901 0445, or click here to make a free enquiry. We are well known across the country and can assist wherever you are based. We also have offices based in Cheshire and London.
Disclaimer: This article provides general information only and does not constitute legal advice on any individual circumstances.
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