How do you sell and transfer shares in a private company?
Transferring shares in a private company can be very complex and there are a number of steps that need to be taken in order to do so. In this blog we’ll be looking at the correct way to do it.
In a company’s shareholder agreement there is often an agreed set of detailed procedures that need to be followed and/or enacted in order for the transfer of shares to be completed.
It is expected that the existing shareholders should be offered first refusal to buy any shares that are being sold at the price agreed upon in a recent valuation. If none of the other shareholders wish to buy the shares (after a time frame specified in the shareholder agreement) then the shares can be offered for third party sale.
Getting an agreed valuation for a private company
Something else that you can expect to see in the shareholders agreement is exactly how the shares should be valued in the event of a sale.
There are numerous ways to value business and how this is actually carried out depends on the above and on many other factors that may affect the market.
The asset value of the company is the main way in which its value will be calculated – but the perceived future performance of a company will also affect its value. In turn – any buyer interested in a company may offer a greater sum than the present valuation if it is concerned that other parties have already made on offer, or that it is in some way imperative that they purchase the company – i.e. if a company wishes to buy out it’s nearest market rival and is concerned that another rival is about to snap it up.
Due diligence when buying a private company
When the terms and conditions have been agreed the buyer’s solicitor will send on a due diligence questionnaire for the seller to complete. The seller will also be compelled to make available certain documents pertaining the company funds. These documents and the questionnaire itself will be carefully checked by the buyer’s solicitor so that the details can be verified and the process can move on to the share purchase agreement.
What is a share purchase agreement?
The share purchase agreement (SPA) is a document that details and proves the sale and/or purchase of shares. The SPA can be complex or simple depending on the nature of the business and the transaction itself. Any warranties contained within an SPA must then be laid out in a disclosure letter.
Transfer of shares
A transfer form can then be issued which contains the name of the company, the shares, the buyer, and the seller.
As you can see this is a complex legal procedure that demands close scrutiny. Make sure you have a trustworthy and experienced solicitor to act on your behalf.