Transfers of shares in a company refer to the transfer of shares or equity interests of a company to another person.
These transfers may occur for various reasons, such as sale, donation, inheritance or any other legal act that entails a change in ownership of the shares.
It is important to note that, depending on the type of company (for example, public limited company or limited liability company), the rules and procedures for carrying out these transfers may vary.
Furthermore, transfers of shares may be subject to certain restrictions or requirements set out in the company's articles of association , applicable legislation, or agreements between the partners.
The transfer of shares
Generally speaking, and especially in relation to the transfer of shares in a company, clauses are usually negotiated that consist of a preliminary or preparatory phase to establish the basis for their application.
These clauses can be included in the bylaws or simply set out in the shareholder agreements , which will bring about differences in their enforceability.
The choice is subject to the autonomy of the will of the parties ( art. 28 LSC ).
According to Article 188 of the RRM , "any clauses that restrict the transfer of all or some of the company shares may be registered, with no limitations other than those established by law."
Also :
«The statutory clauses by which a preferential right of acquisition is recognized in favor of all or some of the partners, or of a third party, shall be registrable in the Commercial Registry, when they precisely express the transfers in which the preference exists, as well as the conditions for exercising that right.»
Likewise:
«The statutory clauses that impose on the partner the obligation to transfer their shares to the other partners or to specific third parties when circumstances expressed clearly and precisely in the statutes occur will be registrable in the RM.»
Normally, among these clauses, there are limitations on the free transfer of social shares - in the case of a limited company - or shares - in the case of a public limited company.
Some of these are the Lock-up , Good leaver and Bad leaver clauses.
What are Lock – up clauses?
Lock-up clauses are a form of corporate blocking of the sale of shares with which investors are obliged to remain in the capital for a certain period of time.
What are Good Leaver clauses? And the Bad Leavers?
In the case of Good Leavers and Bad Leavers, it consists of remaining as a service provider.
These clauses are renegotiated and regulated depending on the circumstances and in detail.
Thus, different price determinations may be carried out for different assumptions that may be reflected in the company's bylaws.
Classes of participations can be agreed using the tools that the standard provides, so as not to agree on the conditions reciprocally.
This implies that some partners may be forced to remain while others are free from such restriction.
The period of permanence set by the RRM usually reaches 5 years from the deed of incorporation or the extension in the Statutes.
There is also the right of first refusal . This is the quintessential protection for shareholders, which the vast majority of companies agree to include in their agreements.
Objective
Its objective is to grant all partners who initially trusted in the project and who already hold a position in the capital, the privilege of accessing the repurchase of shares before third-party acquirers.
It is a clause that benefits all partners at the time of agreement, and that protects them mutually against the entry of outsiders, with whom they should re-agree and align interests.
The waiver of the right of preferential acquisition has a limited validity in time.
This is because, with it, the partners are going against their own interests and are not managing to safeguard the capital from the entry of outsiders.
However, by including the tag-along transfer restriction clause , an escape route will be offered to partners who reject the entry of a third party, so that they could be jointly agreed upon.
It can also happen the other way around, that a partner is offered the right of accompaniment and rejects it for acquiring the shares by exercising the preemptive acquisition right.
When can shares be transferred?
Shares can be transferred both during the lifetime of the shareholder and upon death . With regard to the former, the law establishes a system of restrictions on the transfer of shares to persons outside the company , allowing free transfer when it occurs between shareholders or is made in favor of the spouse, ascendant, or descendant of a shareholder, or in favor of companies belonging to the same group. Shareholders attending the General Meeting have preferential rights to acquire shares (preemptive acquisition).
If there are several concurrent partners interested in acquiring, the shares will be distributed among all of them in proportion to their participation in the share capital.
If no partner of the company is interested in acquiring the shares that are to be transferred, then the General Meeting may agree that the company itself acquires the shares.
Price Factor
Regarding the price, it is established that the price of the shares, the form of payment and the other conditions of the operation, will be those agreed and communicated to the company by the transferring partner.
If the payment of all or part of the price is deferred in the transmission project, for the acquisition of the shares it will be a prerequisite that a credit institution guarantee the payment of the deferred price.
In cases where the planned transfer is for consideration other than purchase and sale or free of charge, the acquisition price will be the one set by mutual agreement between the parties and, failing that, the fair value of the shares on the day on which they are sold. would have communicated to society the purpose of transmitting.
When the shares are to be transferred to a person other than those indicated above , the provisions of the statutes must be followed , and if they do not establish anything in this regard, the provisions of Article 107 of the Spanish Companies Act (LSC) must be observed.
These transmission regimes benefit from the right of first refusal (preferential acquisition), withdrawal (acquisition after sale to a third party), veto - or syndication of votes -, or temporary prohibition of transmission.
It may also be governed by tag-along and drag-along clauses.
What are clauses? tag-along
Tag-along clauses serve to neutralize the expropriatory effects of inefficient sales on the overall value of the company.
Its specific purpose is to prevent one of the partners from liquidating their stake in the company by transferring their share to a third party and thus appropriating a portion of the surplus that would not correspond to them according to the agreement.
The risk that these clauses try to govern is that of expropriation through any non-compliance leading to ending a relationship to appropriate a larger part of the surplus than would initially correspond to it.
These agreements consist of three parts: a tag-along clause , a put or sell option, and a penalty.
What are clauses? drag along
For their part, drag -along agreements serve to combat the risk of expropriation in cases of efficient or productive sales.
By sales we mean any operation that allows the transfer of the company to a third party, whether through a private acquisition agreement (a merger, for example) or publicly (an initial public offering, for example); provided that they generate value as a result of the exchange.
Conversely, these clauses do not apply in cases of inefficient sales (those transfers in which their value is redistributed).
In these cases, the partner's interest is to exit the partnership as soon as possible to avoid that loss. Typically, to protect their interests, they have included a tag-along clause in the contract , allowing them to exit with the other partner if the latter embarks on an inefficient transaction.
The risk that these clauses try to govern is that of free-riding.
Its purpose is to prevent one of the partners from remaining in the company to appropriate the increased value that the new partner may generate when the time comes to sell.
Transmission mortis causa
It is also possible to transfer social shares mortis causa ; that is, upon the death of their owner, passing them on to their heirs or legatees.
In this way, the successor of the deceased acquires the status of partner of the limited liability company.
However, Article 110 of the Capital Companies Law establishes that the statutes may establish in favor of the surviving partners and, failing that, in favor of the company, a right of acquisition of the shares of the deceased partner, valued at the fair value they had on the day of the partner's death, the price of which will be paid in cash.
The valuation will be governed by the provisions of articles 353 et seq. and the right of acquisition must be exercised within a maximum period of three months from the date of communication to the company of the hereditary acquisition.
At RRYP Global we are expert lawyers in Commercial Law.
At RRYP Global, we can help you develop the most beneficial incentive plan for your company.
