Share Sale/Purchase: Is Shareholders’ Approval Required?
Disclaimer: This Article is Not Legal Advice
This article aims to provide a basic understanding of scenarios where shareholders’ approval is required in a share sale/purchase transaction. However, please remember that this is not legal advice. Every company’s situation is different, so it is important to get personalised advice from a qualified legal expert for your particular circumstances. This article is for information only and should not replace professional legal advice.
Introduction:
Generally, there is no mandatory legal obligation for shareholders to approve the sale or purchase of shares when the parties involved are private companies. However, in certain situations, such approval might be necessary. This typically applies in the following instances:
- The transaction is classified as a substantial property transaction as defined under sections 190 to 196 of the Companies Act 2006.
- The company’s articles of association or an applicable shareholders’ agreement require shareholders’ approval.
The Meaning of Substantial Property Transactions
A transaction requires the approval of the shareholders of the buyer or seller if it qualifies as a substantial property transaction under sections 190 to 196 of the Companies Act 2006.
In essence, a substantial property transaction involves a company either buying or selling a substantial non-cash asset to or from the following:
- A director of the company or its holding company.
- Any individual or entity connected with a director of the company or its holding company.
An asset is considered non-cash and substantial if its value exceeds either 10% of the company’s asset value and is more than £5,000, or it is over £100,000 in value.
If such a substantial property transaction is completed without the requisite shareholder approval, the transaction may be voidable. Additionally, the directors involved may be required to account for any direct or indirect gains and provide indemnity for any loss or damage that arises.
Consent Required Under Articles or Shareholders’ Agreement
Typically, a company’s board of directors is responsible for making transactional decisions. It’s unusual for a company’s constitution or shareholders’ agreement to mandate shareholder approval for entering into share sales or purchases as part of regular business activities.
However, if the transaction significantly alters the nature of the business or involves a holding company disposing of most, if not all, of its assets and business, the articles of association or relevant shareholders’ agreement might stipulate that such transactions require prior shareholder approval. For instance, a provision could specify that:
- The sale of a significant subsidiary must be approved by shareholders holding at least 75% of the voting shares entitled to vote at a general meeting.
- The consent of one or more key shareholders might be necessary for certain transactions, often seen in joint ventures or multi-party investments where a leading shareholder plays a decisive role in critical business decisions.
Therefore, it is essential to review the articles of association and any relevant shareholders’ agreements to determine if they impose any shareholder consent requirements for a corporate buyer or seller.
Conclusion
In conclusion, while shareholder approval is generally not required for share sales or purchases in private companies, there are key exceptions. Substantial property transactions under the Companies Act 2006 and specific provisions in a company’s articles of association or shareholders’ agreements may necessitate such approval. Always review your company’s governing documents and seek legal advice to ensure compliance and protect all parties involved.
For specialist advice and support. please get in touch with our divorce solicitors in London now by calling 020 7139 9266 or contacting the GOOD LAW INTERNATIONAL office.
A warm welcome to GOOD LAW INTERNATIONAL. To learn more about us and our practice areas, we invite you to browse through our website and contact us or book an appointment.
