Similar to any other investment, purchasing shares requires thought and planning. However, once a person has decided to purchase shares, they also need to be sure that the sale of the shares proceeds according to all the necessary formalities, with the correct documents. A purchaser’s name will only be entered onto the register of members if title passes correctly. This article details the documents required to effect a sale of shares.
Of course, every sale of shares will vary. This fact is attributable to the uniqueness of every situation and because each company has its particular process for the transfer of shares. Nonetheless, the sale of shares typically requires:
- Share sale agreement;
- Resolution of shareholders;
- Resolution of the board;
- Share Transfer Form;
- Share Certificate;
- Letter of Resignation (if applicable); and
- Notification to the Australian Securities and Investment Commission (ASIC).
Share Sale Agreement
A share sale agreement is a document that outlines the terms of the sale. It informs both parties to the transaction what will happen and on what conditions. These agreements may also be relevant in the event of future disagreement about the sale. They provide a written record of the agreement between the vendor and purchaser.
The share sale agreement needs to be as comprehensive as possible. It should indicate how many shares the vendor is selling and the price that the buyer is paying for them. The document should also discuss how payment will take place, For example, if the purchaser intends to make one, lump sum payment or pay in instalments. The vendor must make all appropriate warranties. These not only give the purchaser certain assurances about the shares but can form the basis of any claim for damages in the future if necessary. More practically, the agreement should specify when the sale will occur and where it will take place.
Resolution of Shareholders
The company in which the vendor is selling their shares may have a shareholders’ agreement. This agreement details the respective rights of every shareholder in the company. It might give shareholders the right of first refusal. This right means that any member wishing to sell their shares must offer them in the first instance to existing shareholders before executing a transfer to a third party. If this is the case, a sale to a third party requires that all members agree in writing to allow the sale and thus waive their right of first refusal. Alternatively, the members can pass a unanimous or special resolution that approves the sale of shares to another party.
When a person purchases shares, the transaction involves three, rather than two, parties. That is, it is not merely an agreement between a purchaser and vendor but these two and the company itself. And the company in question may have a constitution or shareholders’ agreement that requires that the transfer of shares to a third party needs a formal resolution of the board. If that is so, the board must meet and formally resolve to allow the sale. Once they have done so, the company has entered into the agreement. The official minutes of the meeting must record and reflect the resolution.
Once the purchase is complete, a vendor must provide the purchase with a signed share transfer form. This form details the shares that are the subject of transfer and the consideration given to the vendor for them.
Similarly, once the vendor has sold their shares, the company must cancel their share certificate and issue a new one in the name of the purchaser. A share certificate is a critical document because it recognises a person as a member of a company. In other words, it proves ownership. All purchasers must ensure they receive a share certificate in their name.
When the shares of a company are subject to transfer, the company must notify ASIC. The correct form is available online, and the company must submit it within a designated period after the sale.
Letter of Resignation
If the vendor of the shares is also a director of the relevant company, they need to provide a formal letter of resignation. They can give this at the time of completion or before it takes place.
Buying shares is an important process and can be made simpler with professional advice and assistance. It would be our pleasure to assist you. Call LegalVision today on 1300 544 755 or fill in the below form.