Where a company has more than one shareholder it will often consider including in its articles special provisions relating to share transfers.


Pre-emptions on transfer

If the shareholders in a company are concerned to ensure that a third party may not acquire a stake in their company without their consent, then the articles of association may be amended to include pre-emptions on transfers.

Under these provisions, any shares that are put up for sale must be offered by the company to the existing shareholders, in proportion to their existing holdings. This gives the existing shareholders the opportunity to acquire the shares, to prevent them from being sold to a third party.

Pre-emptions on transfer are often coupled with pre-emptions on issue, so that new shares cannot be offered to third parties without the existing shareholders being given the opportunity to buy.


Permissable transfers

It is possible to include in the articles provisions which allow shares to be transferred between certain classes of people without them becoming subject to any pre-emptions provisions.

For example, if each of Mr and Mrs A and Mr and Mrs B hold 25% of the shares in a company (so each family has 50%), the articles may provide that transfers between husband and wife can occur. This will enable Mr A to transfer all his shares to Mrs A if he wishes, without the A family losing control of their 50%.

This type of provision can be extended to allow transfers to other family members, or into trusts, and are generally used for tax planning purposes. They can also be used to allow corporate shareholders to transfer intra-group.


Forced transfers

Sometimes the identity of the shareholder is key – for example where shares are provided to managers or to employees in order to incentivise them. In these situations, if the employee dies or ceases to be employed, it is common for the articles to provide that the shares held by that person must be transferred. This is so that they can be used to incentivise the employee who replaces them.


Drag along, tag along

Drag along provisions require minority shareholders to sell their shares to a purchaser of the majority of the shares, so the purchaser can buy all of the share capital.

Tag along provisions allow a minority shareholder to require the purchaser of the majority of the shares to buy their shareholding, so they can exit with the majority shareholder.

These provisions are used where there are different classes of shareholders – for example a management class and an investor class – and there is concern that one class may exit the company without the other.

Our services include:

• Drafting the relevant share transfer provisions for inclusion in the articles of association;
  
  
• Preparation of all necessary minutes and resolutions to effect the change· Filing of the resolutions and amended articles of association at Companies House.

Next steps

Our services start at £200 + VAT (£235).

For more information please contact our Corporate Legal Services team using the links in the box on the right or ORDER NOW.