In the context of a dynamically developing economy and various business forms, the issue of selling shares in legal entities is becoming especially relevant. Depending on the enterprise’s organizational and legal form, this operation has different approaches and features. Various motives can cause a share sale in a legal entity, from a desire to withdraw capital to participation in business reorganization or a change in strategic course. A proper understanding of the legal aspects and procedures related to the sale of a share allows you to avoid legal risks and complete the transaction. In this article, we will look at the critical points associated with the sale of shares in various legal entities, analyze the features of each form, and give practical recommendations for owners and investors.
Which Companies May be Involved in Selling a Share
Issues related to the sale of shares may arise in companies where the authorized capital is divided into shares according to the number of participants (property owners). Such companies include limited liability companies (LLCs) and additional liability companies (ALCs).
In joint-stock companies, selling shares may be a question, including those for which the authorized capital and control packages have been formed.
In private unitary enterprises, there is no question of selling a share since the authorized capital of such companies is not divided into shares. However, when reorganizing a private unitary enterprise, it is quite possible to create, for example, an LLC. In this regard, it can be said that the owner of a unitary enterprise can divide the authorized capital into shares to attract a co-founder investor and transform the unitary enterprise into a limited liability company.
Features of the Sale of Shares in the Company
The desire to sell a stake in the company may arise for various reasons. However, as a general rule, before looking for a buyer, you need to offer the purchase of a share to other owners, the company itself. The offer must specify the terms of sale of the share and its value. You can contact third parties only if other owners and companies refuse to purchase shares. Moreover, the share sale to third parties must be on the same terms offered to different owners and the company. For the correct transaction, we recommend contacting an experienced lawyer.
Preemptive Right to Purchase a Share
When a participant in a limited liability company decides to sell his share or part of it, he must first offer this transaction to the company’s other owners. They have the preemptive right to purchase this share (or part of it) in proportion to the size of their shares in the authorized capital. The company’s charter may specify other conditions for exercising this right.
The procedure for the sale of a share (or part of it) should be described in detail in the articles of association. Our experienced lawyers will help you understand compliance with the rules of preferential purchase of shares and the legality of the transaction itself. In particular, the preemptive right to purchase must be realized within 30 days from the date of sending the notice of sale.
It should be noted that the assignment of the preemptive right to purchase a share (or part of it) is prohibited. If the right of preemptive purchase has been violated, any member of the company or the company itself has the right to request the transfer of the buyer’s status to itself within three months. All such claims will be considered in court.
Purchase of a Share by a Company
The company may acquire a share in the following cases:
- When other owners did not use their right to preemptive buy a share.
- When, within a year from the date of state registration of the company or another period specified in the articles of association, the participant has yet to fully contribute the value of the share to the authorized capital.
- When buying a share (part of a share) from a participant, he is paid the actual value (part of the share in proportion to the contribution made). With the participant’s consent, he may be given property to pay for part of the share. The actual value of a part of the participant’s share is determined from the balance sheet for the reporting period that precedes the expiration date of the deposit repayment period.
- The actual value (part of the share) is paid no later than 12 months from the expiry date of the deposit period. For such a purchase, a unanimous decision of the general meeting of owners is needed without considering the vote of the participant who made only part of the contribution. The actual value of the participant’s share (part of the share) is paid at the expense of the difference between the value of this company’s net assets and its authorized capital.
What Should the Company Do with the Acquired Share
A company cannot permanently own a share or part acquired from a participant. During the year, the company must choose one of the ways to alienate the share:
1. Distribute the share among all participants in proportion to their shares in the authorized capital.
2. Sell the share (part of the share) in compliance with the right of preemptive purchase. If other company owners refuse to purchase a share, the company may sell it to other persons. But you need to check that there is no prohibition on such transactions in the company’s charter.
3. Transfer the share (part of the share) to the company’s employees.
If the share is not sold at the end of the year, the company must reduce its authorized capital by the value of this share.
Is it Possible to Sell a Share in the Company to its Employees
The share owner can sell the share to an employee (employees) of the company in compliance with the sale procedure and taking into account the preemptive right to purchase the share. In this case, the employee becomes one of the company’s owners.
A company (LLC) may sell to employees a share that has passed to the company when the following conditions are met:
1. The possibility of such a sale is spelt out in the company’s articles of association.
2. The decision of the general meeting of participants on the share sale is unanimous.
3. It is possible to sell a share or part of it to members of the Board of Directors (supervisory board), the executive body and (or) employees of the LLC.
A deal on the sale of a share (part of a share) is possible after the general meeting of participants has unanimously decided. Usually, the same decision approves amendments to the company’s articles of association and changes in the size of shares in the authorized capital.
Sale of Shares
It is possible to sell shares as a share in the company’s ownership on an organized market – on exchanges and the over-the-counter market – by open sale (subscription).
When selling shares, they usually do not amend the company’s articles of association when it is not a question of selling a controlling stake (50% + 1 share).
A joint-stock company may acquire its own shares by decision of the general meeting of participants to achieve certain goals. We recommend attracting experienced corporate lawyers to make such transactions.
Recommendations: What to Look For when Selling a Share in a Company
When selling a share in a company, it is essential to consider many factors to ensure the transaction’s success and minimize risks. Here are practical recommendations that are worth paying attention to:
1. Agreements between the Parties:
Discuss the terms of sale in advance, including the price, payment method and deadline. All conditions must be clearly stated in writing.
2. Share Assessment:
Conduct an independent valuation of the share to establish a fair market price. This will help to avoid disputes and misunderstandings with the buyer.
3. Legal Aspects:
Study the company’s articles of association to understand what rules and restrictions exist for the sale of shares. Find out whether the consent of other participants or the company’s bodies is required and whether the company has a preferential right to purchase a share before offering a deal to other participants and third parties.
4. Documentation:
Prepare all the necessary documents, such as the general meeting minutes, the share purchase and sale agreement, the transfer act, etc. Ensure that all documents comply with legal requirements.
5. Taxes and Financial Consequences:
Consider the tax consequences of the transaction. Contact your tax advisor to analyze possible tax liabilities.
6. Customer Verification:
Evaluate a potential buyer’s reliability and financial viability. Ask for recommendations to verify his reputation.
7. Confidentiality:
Consider signing a non-disclosure agreement (NDA) with a potential buyer if the transaction involves sensitive information.
8. Feedback from Participants:
Involve professionals in the process, such as lawyers and accountants, to ensure the correct execution of all stages of the transaction and avoid possible legal difficulties.
9. Exit Conditions:
Include in the contract the terms of exit from the business (if applicable), which will help ensure the protection of your interests after the transaction is completed.
10. Succession Planning:
Discuss with the buyer the plans for further management of the company and its intentions towards the business to minimize the risk of conflicts in the future.
Following these recommendations will help you conduct the process of selling a stake in the company more transparently and safely, reduce risks, and increase the chances of successful transaction completion.
Contact us
If you have any questions or disputes related to the sale of shares in the types of legal entities in Belarus, we will be happy to help! Our long-term experience in divident payment will help you resolve any disputes in this area.
- +37529366-44-77 (WhatsApp, Viber, Telegram);
- info@ambylegal.by.
