Is a Shareholder of your company going to be exiting?
Things come and go. The same way shareholders of a company come and go – whether be for a good or bad reason(s).
Needless to say, it is a normal and common thing that all companies at some point in time experience.
So what happens to the exiting shareholder’s shares of the company?
Well, usually one of two things happen – and that is their shares are transferred to another shareholder of the company, known as a Sale of Shares, or their shares are transferred back to the company itself, known as a share Buy-Back.
What happens in a Sale of Shares?
If the exiting shareholder wishes to sell their shares to another shareholder of the company this process will require an execution of a Share Sale Agreement.
A Share Sale Agreement is a contract detailing the terms and conditions of the sale of shares.
Depending on your unique company, situation and interests, your commercial lawyers would be in the best position to prepare a Share Sale Agreement for you regardless of whether you are an exiting shareholder or a purchaser of the shares.
Once the transaction has taken place, the following would then need to be satisfied to complete the sale of shares:
- Signing of a Share Transfer Form.
- The company cancel the exiting shareholder’s share certificate.
- The company issue to the purchaser of the shares a new share certificate.
What happens in a Share Buy-Back?
The option of transferring shares back into the company is also available if selling shares to another shareholder of the company is not attractive.
Under these circumstances, the company would have to satisfy a number of requirements including:
- Having a meeting with all shareholders to agree to the Share Buy-Back.
- Having a meeting with all members of the board of the company to agree to the Share Buy-Back.
- Notifying the Australian Securities and Investments Commission of the proposed Share Buy-Back.
Following this, the company is then required to provide to all relevant shareholders a Shareholder Buy-Back Agreement outlining all obligations pertaining to relevant shareholders.
So which is the better option?
Generally, commercial lawyers advise to engage in a Sale of Shares simply because the transaction is much less complex than that of a Share Buy-Back.
That being said though, it all depends on your company’s unique situation.
In some circumstances, a Share Buy-Back may be more beneficial, so it is crucial that you obtain adequate legal advice which takes into consideration yours and your company’s best interests.