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If you are a shareholder who is in the process of selling the shares in your company, there are a number of things you should consider as part of the sale process. This includes the practical steps you and the buyer need to take to finalise the sale. This article provides an overview of the tasks you need to complete to make sure that your share sale finalises correctly.
Updating the Company Records
The day that the buyer takes over ownership of your shares is called the completion date. On this date, you must provide the buyer with the following documents as part of the share sale process:
- a signed share transfer form;
- your existing share certificate for the shares;
- a copy of the board resolution of the company approving the sale of the shares;
- a copy of the members resolution waiving any pre-emptive rights in respect of the transfer of the shares;
- the records of the company;
- a signed letter of resignation as a director, secretary or public officer;
- the ASIC corporate key for the company; and
- anything else specifically included in the share sale agreement as an obligation on you to provide at completion.
Your lawyer or accountant should be able to assist you in preparing these documents. If you have already completed the sale and you did not provide these documents to the buyer, you must provide them as soon as possible. Otherwise, you may be in breach of the share sale agreement.
Following completion, you will then need to arrange to update the:
- members register of the buyer’s purchase of your shares; and
- directors register of your resignation and the buyer’s appointment in their new role within the company.
It is best to work together with the buyer when finalising these documents to ensure this occurs as soon as they have paid you.
Updating ASIC
Generally, the share sale agreement will include an obligation on you and the buyer to update the Australian Securities & Investments Commission (ASIC). Alternatively, you need to do all things reasonably required to register the transfer of the shares after completion. The practical process to do this is to:
- first, appoint the buyer as a director and then have the buyer update ASIC of your resignation as a director. This is because ASIC will not allow you to remove yourself as a director using the online system;
- use your ASIC corporate key to log in to the ASIC portal to notify them of the change in the shareholding of the company;
- provide the buyer with a copy of the documentation evidencing the lodgement of the company changes (form 484); and
- have the buyer use the ASIC corporate key to log in to the ASIC portal and remove you as a director and provide you with confirmation of that change (form 484).
You and the buyer must update ASIC within 28 days of the completion of your share sale. If you fail to do so, you may need to pay a late fee. As at the date of this article, the late fees are:
- $80 for up to one month late; and
- $333 for over one month late.
Post-Completion Obligations
There may be additional post-completion obligations included in your share sale agreement that you will need to finalise after the sale is complete. Some common examples are:
- the release of any director guarantees that were not released before completion;
- non-compete or restraint of trade clauses; and
- post-completion training or assistance periods.
Guarantees
It is important to make sure that you are personally released from any guarantees you provided as a director on behalf of the company. This may include a guarantee you provided for:
- your premises lease; or
- an equipment hire contract.
Ideally, these guarantees would be released before the buyer takes over your company. However, sometimes a sale is completed before this happens. This may be because you need to finalise the sale urgently, and have not had time to meet the requirements of a third party to replace the guarantors before they need to complete the sale.
If you are completing the share sale on an urgent basis, it is essential to include a clause in your share sale agreement that requires both you and the buyer to arrange for the release of your guarantees as soon as possible following completion.
Non-Compete
It is common for a share sale agreement to include a clause that prevents the seller from competing with the business of the company for a period of time after the sale. This is to protect the buyer, given they have paid value for the company and the business. It would be unfair if you could simply start up a similar business and take your clients back after selling the first company to the buyer.
For this reason, you need to be mindful of any non-compete or restraint of trade clauses in the share sale agreement. This includes:
- considering how long the restraint period is for; and:
- how this will impact on your plans after the sale.
Post-Completion Training
A buyer may ask you to continue to be involved in the business for a period of time after completion. This will ensure a smooth transition period. This requirement may be set out in the share sale agreement itself, or a seller may enter into a separate agreement with you.
In either situation, if this is relevant to you, you will need to make sure you comply with your obligations in this respect.
Key Takeaways
It is important to make sure that you and the buyer of your company fulfil all of the procedural steps involved in completing your share sale. This ensures that you have validly transferred the shares to the buyer. It also provides an opportunity for you to outline when your involvement in the company ends. If you have any questions about the share sale process, contact LegalVision’s business sale and purchase lawyers on 1300 544 755 or fill out the form on this page.
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