Changing of shareholders and sale of corporate rights in 2019

The ways of changing of shareholders are entry, withdrawal and sale (purchase) of corporate rights.

These procedures are significantly different, but often when talking about withdrawal, participants mean the sale of corporate rights, and when talking about entry – the purchase of shares in the authorized capital.

 

Entry to an LLC

Entry into a limited liability company under the new LLC law is made by deciding to attract additional third party contributions.

That is, the general meeting of shareholders decides to increase the authorized capital, determine the person who will make the additional contribution, and after its payment – accept such a person as a shareholder of the Company.

This procedure is not popular due to certain features.

The law provides for the pre-emptive right of existing shareholders to make additional contributions, and third parties may make contributions only after the exercise of their right by existing shareholders (or refusal to exercise it). Therefore, the procedure is delayed for a period during which other shareholders have the opportunity to exercise their right, and then for an additional period established for third parties.

In addition, in case of entry, there is necessarily an increase in share capital. And often shareholders want to attract a new business partner without resizing it.

 

Withdrawal

The exit procedure varies depending on the size of share of the shareholder.

A shareholder with less than 50% of the share capital may withdraw from the company at any time without the consent of other shareholders.

A shareholder with a 50% + share must first obtain the consent of other shareholders of the company (all).

The disadvantages of the withdrawal procedure for a participant with 50% + in the share capital is the need to obtain consent from other shareholders , which they may not provide.

For a company, the disadvantage is the need to pay the shareholder the market value of its share, which causes a decrease in the share capital and assets of the company.

 

Sale and granting of a share (corporate rights)

The sale or granting of a share is essentially a substitute for one shareholder in the company. However, the change in the size of the authorized capital does not occur.

For the sale/granting of corporate rights, a written contract of sale or gift must be entered into. Such a contract does not require notarization.

Confirmation of the transfer of the share (corporate rights) will be an act of acceptance-transfer, certified by a notary.

In such a case, the change of shareholders does not cause any consequences for the company, and therefore the said method is the most common.

But there are also some nuances to consider here.

First, unless otherwise provided in the charter, other shareholders have a pre-emptive right to purchase a share sold by the shareholder to a third party. Therefore, in the case of the sale of the share to a third party, you should first obtain the refusal of other shareholders to buy it and only then sell the share to the third party. In this case, the price cannot be reduced, as the transfer of the rights and obligations of the buyer to the infringing party may be a consequence.

However, the pre-emptive right does not apply in the case of the granting of a share.

Secondly, if a share is sold at a price that exceeds its face value, the seller is required to tax investment income.

If a granting agreement is made, the gifted person is obliged to tax the income.

 

Documents and procedure

For state registration in case of change of shareholders the following are submitted:

  • statement (form 3);
  • a receipt for payment of the administrative fee;
  • one of the documents confirming the changes of the shareholders. Such documents in the above cases are the decision of the General Meeting to determine the size of the shares and the composition of the shareholders, the application for entry, the application for withdrawal or the act of acceptance-transfer of the share.

Registration is carried out within 24 hours of receipt by the registrar of documents.

Changing of shareholders and sale of corporate rights in 2019
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