Strategic And Creative Representation For Today’s Business World

  1. Home
  2. Commercial Litigation
  3. Restrictions are important when transferring shares of a company

Restrictions are important when transferring shares of a company

Feb 10, 2021 | Commercial Litigation

When creating shareholder agreements, some Florida company owners may want to utilize a unanimous shareholder agreement. This type of agreement is often used in efforts to avoid certain stresses that can come along with new business ventures as it allows the shareholders to restrict management powers of the directors or act in a supervisory capacity. It can also come with various terms for how other matters within the company should be handled, and that includes show the shares of a company can be transferred.

It is not uncommon for shareholders to want to transfer shares. A myriad of reasons exist for doing so, but transferring shares could prove detrimental to a company if a shareholder is simply allowed to transfer those shares to whomever he or she pleases. As a result, companies often put restrictions on transfers so that shares do not land in the hands of objectionable individuals.

The unanimous shareholder agreement can include stipulations for how a transfer of shares should be handled, and some options include:

  • Right of first refusal, meaning that other shareholders have to first be given the opportunity of buying shares at the same price as an outside offer before the outside offer can be accepted
  • Piggyback rights, meaning that someone buying one shareholder’s shares must also buy the other shareholders’ shares for the same price and terms
  • Right of first offer, meaning a shareholder must offer his or her shares to the other shareholders before attempting to sell to an outside party
  • Drag-along rights, meaning that majority shareholders selling to an outside party also require minority shareholders to sell their shares to the same outside party

Transferring shares of a company is an important aspect of the business world. If a Florida company does not have proper restrictions and stipulations in its shareholder agreement regarding these transfers, an unwanted party could end up having significant say in how the company operates. As a result, it is important to ensure that all terms regarding shares are thoroughly considered and legally binding.