The transfer of shares means, for a partner, the sale of his ownership in a company. Indeed, at the establishment a company, share capital is divided between the founding partners according to the amount of their contributions. As such, each founding partner receives a certain number of shares that reflects their contributions.
This article covers the details of transfer of shares in an LLC (Limited Liability Company) and in a PLC (Public Limited Company). Note that both cases require a precise formalism.
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Transfer of shares in an LLC
In principle, LLC shareholders are free to transfer, sell, pledge or assign their shares. However, this transfer is highly regulated and must meet several conditions to be valid.
First of all, the shares, subject to transfer, must be fully subscribed and fully paid up by the partners. Only these shares can be transferred.
The transfer of shares can be concluded with a third party, another partner, a spouse, ascendants and descendants. Formalities vary depending on the nature of the recipient (buyer/assignee).
Transfer of shares to a third party
In this case, the law requires the agreement of a majority of the partners representing at least three quarters of the share capital. This is the only case that requires an approval procedure.
Firstly, the proposed transfer must be notified to the partners by registered letter with acknowledgement of receipt. Afterwards, the company’s manager convenes an ordinary general meeting (OGM) within eight days of the notification. The agenda of the meeting will be the transfer of shares and must indicate their owner.
This OGM’s purpose is to allow the other shareholders to take part in the proposed transfer of shares. They can either approve or reject the transfer within 30 days. In both cases, the decision must be notified to the transferor by registered letter with acknowledgement of receipt.
In the event where the proposed transfer is accepted, shareholders must hold an extraordinary general meeting. The purpose of this meeting is the amendment of the articles of association.
Transfer of shares to another partner
According to the provisions of Article 60 of the Law 5-96 on Limited Liability Companies, shares can be freely transferred between partners of an LLC, unless stated otherwise in the company’s Articles of association.
Moreover, the articles of association may provide for an approval clause to keep the balance of power and rights of the partners.
Transfer of shares to a spouse, ascendants and descendants
Article 58 of the aforementioned law also states that: ” shares are freely transferable by inheritance and freely transferable between spouses, relatives and allies up to the second degree, included.
Once again, an agreement may be necessary if provided for in the articles of association.
Formalities common to all transfers of shares
The following formalities apply to all the previous transfer transactions. These formalities are as follows:
- Drafting the deed of transfer. This deed must be authenticated or notarized. It must indicate : the names of the transferor and the transferee, the number of shares transferred and their unit price, the total price of the shares, the approval of the associates and the amendment to the articles of association;
- Registration of the deed with the tax office
- Amendment to the Articles of Association
- Registration of the deed of transfer with the trade court registry
- Publication in the Official Bulletin and in a Legal Announcements Paper (Journal d’Annonces Légales)
Note that it is mandatory to materialize the transfer of shares in writing under penalty of nullity of the transaction (Article 16 of the Law 5-96)
Transfer of shares in a PLC
Shares in a PLC are freely transferable. However, although the transfer operation is simple, a deed of transfer must be drafted, even though it is not required by law.
Unlike the Limited Liability Company, the transfer of shares in a PLC is subject to simpler rules. However, the articles of association may provide for stricter conditions such as an approval clause for example. Of course, this does not include the transfer to a spouse, a parent, or to ascendants and descendants.
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The request for approval must contains the information of the transferee (name, first name, address), the number of shares to be transferred and their price. The purpose of the request is to submit the proposed transfer to a third party for prior approval by the other shareholders.
Article 253 of law 17-95 relating to public limited companies explains that in the event of refusal of the transfer, the board of directors must have the shares purchased. Either by another shareholder or a third party, or, with the agreement of the transferor, by the company.
- It may also have a clause that prevents any shareholder from transferring their shares for a specific period of time. Also called a lock-up clause.
- There is also a pre-emptive clause that gives any partner a priority on the acquisition of the sold shares.
Failure to comply with any of these clauses will result in the nullity of the deed.
After the approval of the company, if any, the transfer is registered with the tax authorities.
In short, the law regulates the transfer of shares, whether in a public limited company or in a private limited company, so that the company maintains control over its share capital. It is simpler in the PLC because in principle, the shares can be transferred without writing. Unless otherwise provided for in the articles of association.
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