How to Transfer Shares Using a Sale of Share Agreement

There are various reasons why shareholders may decide to sell their shares in a company: to retire, to start a new business, to raise money, to cut ties with the other company investors, as an exit strategy etc.

Keep reading for more information about sale of share agreements as well as an overview of the legal procedure involved when shares in an Australian private company are sold.

Overview of Share Sales

During a share sale, a selling shareholder may sell part of or all of their shares. Whichever they choose, a shareholder can dispose of their shares through a share sale agreement, wherein the shares are offered to other shareholders (or to external third parties, if the shares were not acquired by other shareholders). for an amount of money.

Transfer of Shares

Before you think about drawing up a sale of share agreement, you need to consider the following:

1. Is the company best placed to sell the shares at the given time?

Will you get the best value for your shares selling at this time? It generally takes a little bit of planning to achieve the best sale price.

2. Do your shareholders approve?

Sometimes you will run into issues bringing another shareholder on board. Do other members of your company approve of the new potential member?

3. Are there any specific clauses in the shareholder agreement/ constitution that prohibit the sale?

Examples of these clauses are preemptive rights under the shareholder agreement, drag along tag along options, etc. These can prevent you from offering your shares first to third parties or compel you to sell your shares to third parties.

4. Are you a director of the company and need to resign?

Normally, in smaller to mid-sized companies, you do not want to continue being a director if you sell all of your shares in the company unless there is some sort of a remuneration.

5. Does a deed of accession need to be made with respect to the new shareholder?

With a deed of accession, the new shareholder will be bound by the existing shareholder agreement in place.

Registration of Shareholders

Once the transfer is signed and delivered, the names of the buying parties will be entered in the shareholder register.

Notifying ASIC

Within 28 days after the issuance of shares to the new owner, the company must inform the Australian Securities and Investments Commission (ASIC) about the transfer by lodging a change to company details. The form should include information about:

• the number of shares sold;
• share class codes;
• agreed purchase price for each of the shares; and
• amount unpaid on each of the shares (if applicable).

What is a Sale of Share Agreement?

A Sale of Share Agreement is a legal document that outlines the terms and conditions under which shares in a company are transferred from a seller (the shareholder) to a buyer. This agreement is crucial in formalising the sale of shares and ensuring both parties are protected during the transaction.

What is in a Good Sale of Share Agreement?

When preparing a sale of share agreement, make sure that it includes the following:

• details of parties (buyer and seller)
• number of shares to be purchased
• total purchase price
• settlement date
• duties and obligations of the parties in relation to the sale
• pre-sale conditions (e.g. licence approvals, consents, etc.)
• seller’s warranties and indemnities (for undisclosed tax liabilities)
• restrictive covenants and non-compete clauses
• remedies in the event of default
• variations and waivers
• notices
• completion arrangements