Share transfer: How to transfer my share in a company or cooperative to someone else?

A business share is a shareholder’s ownership interest in a limited liability company. Ownership of a share gives him both the right to vote and the right to receive a share of the profits. Thanks to the cooperative share, its owner has membership rights and certain obligations in the cooperative. If the owner wants to transfer his share to someone else, this means a major interference in the ownership structure of the company or cooperative. It is therefore necessary to comply with all legal provisions.

The difference in the transfer of shares depends on the type of company. In a limited liability company, the owner must comply with the provisions set out in the articles of association when transferring the share. In public limited companies, the form of the shares (ordinary or preference) is important. And the sale of a co-operative share may then be restricted by the co-operative’s articles of association. If you are going to transfer a share, then be prepared for a number of administrative tasks. You probably won’t miss notarisation, registration of the change in the commercial register and meeting tax obligations.

Agreement on the transfer of a business share

The transfer of shares is always based on a written contract. The share transfer agreement is a legally binding document that must meet certain criteria. It is definitely advisable to have this agreement prepared by a lawyer who knows what everything the agreement must contain and how to formulate specific issues. Contact us and we will be happy to prepare the contract for you.

A share transfer agreement must always contain certain elements, including:

• Identification of the parties: at the outset, both the seller and the buyer need to be identified, including their legal form and identification details.
• Identification of the share to be transferred: This is where you specify how much of your business you want to sell and, if applicable, the terms of the division.
• Purchase price and method of payment: How much are you selling the share for? And do you want to pay for it at once, or is it possible to pay it off gradually? You should also specify the deadline by which the share is to be paid for and any penalties for late payment.
• Conditions for the effectiveness of the contract: This section indicates whether the transfer of the share must be approved, for example, by the general meeting, the consent of the other shareholders or the fulfilment of the conditions set out in the articles of association.
• Seller’s warranties and liability for defects: How is the buying party protected against latent defects in the shareholding? Also record any liabilities associated with the share.
• Form of contract: In most cases, you will need to have your signatures officially certified and in some cases a notarial deed when transferring the share.

Remember that a change in the shareholder must always be reflected in the commercial register, which often involves filing a petition to change the details in the relevant register.

Sale of a business share by a legal entity

The process is a bit more complicated when the transfer of the share is made by a legal entity. In such a case, it is necessary to check whether the articles of association require the transfer of the share to be approved by the general meeting or the supervisory board or another body of the company.

In addition, tax implications must be taken into account, as it is necessary to tax the income when the share is sold, in particular to determine whether the profit will be subject to corporate income tax.

In the case of the sale of a shareholding by a legal entity, it is also necessary to assess the potential liability for existing liabilities associated with the shareholding – the new owner may be liable for certain liabilities of the company after the acquisition of the shareholding, so should be informed in advance.

The sale of a shareholding by a legal entity is therefore a complex process; if you are planning to buy a shareholding, it is definitely advisable to have the financial and legal status of the company checked to avoid unexpected complications.

Selling shares in different types of company

The transfer of a shareholding in a limited liability company is most often restricted by the articles of association, for example, by the requirement for the consent of the other shareholders. The existing shareholders may have, for example, a pre-emption right that cannot be circumvented. And the articles of association may also contain restrictions on transfer to third parties. The transfer of shares in a limited liability company is carried out by means of a share transfer agreement, the signatures on which must be officially certified. The change of the shareholder must then be entered in the commercial register.

In a public limited company, the possibility of transferring shares depends on the specific type of shares. Bearer shares can be freely transferred without the consent of the public limited company. On the other hand, registered shares may require the consent of the board of directors or other corporate body when transferred. Similarly, preference shares may have limited transferability under the company’s articles of association. The transfer of registered shares must then be recorded in the register of shareholders. In some cases, the company or a central securities depository must also be notified of the transfer.

When transferring a cooperative share, the statutes of the cooperative must be followed. Usually, the share can be transferred to another member of the cooperative. If you would like to make a transfer to a third party, you may face a restriction where the transfer must be approved by the board of directors. Each cooperative’s bylaws are different and may set out additional conditions for the transfer, so always refer to the specific document. The change in the owner of the cooperative share must then be recorded in the cooperative’s membership register. The transfer may involve fees and also administrative requirements according to the specific bylaws.

What to look out for when transferring for tax purposes?

The first thing you should look at is income tax. Different rules apply in this case for individuals and corporations. Income from the sale of a shareholding is subject to income tax and different tax rates apply depending on the length of time the shareholding has been held.

The good news is that the sale of a business share is usually not subject to VAT unless it is a continuous activity, so you can leave this area out of your mind. However, as both buyer and seller, we have to reflect the transaction in the accounts, including the valuation of the share and any depreciation.

If you would like to take advantage of some tax optimisation, then this is also possible for the transfer of a share. You can take advantage of tax deductions and tax credits, for example reinvesting the funds in another form of asset.

What mistakes to avoid when transferring a share?

If you underestimate the preparation of the contract and do not entrust it to a professional, it may simply be that the contract is invalid because it is not in the right form or lacks some elements that may invalidate the transfer.

At the same time, be sure to carefully check all the internal rules of the company and the restrictions set out in the memorandum of association. As a buyer, you should also check the company’s financial situation thoroughly so that you are not unpleasantly surprised by hidden debts. Finally, don’t forget to pay any taxes that are related to the share transfer to avoid additional costs and penalties.

Summary

The transfer of a business or cooperative share is a complex process that requires not only a properly drafted contract, but also compliance with legal, tax and accounting obligations. In a limited company, the transfer may be subject to the restrictions of the memorandum of association, such as the need for shareholder approval. In a public limited company, transferability depends on the type of shares – bearer shares can be transferred freely, while registered shares often require registration. The transfer of a cooperative share is then usually subject to the approval of the cooperative’s board of directors. The share transfer agreement must contain key elements such as the identification of the parties, the definition of the share, the purchase price and the method of payment. The change of ownership usually has to be registered in the commercial register and, if the transfer is made by a legal entity, the tax implications and any liability for liabilities must be taken into account. It is crucial to avoid mistakes such as an invalid contract, failure to register or failure to check the company’s liabilities. Professional consultation with a lawyer and tax advisor will help ensure a smooth transaction.