A shareholder typically cannot compel another shareholder to sell their shares absent a contractual obligation allowing them to do so. For example, if the company’s Articles of Association, Shareholder Agreement, or another valid contract contains a provision authorizing such a sale.
Typically, negotiating with the shareholder whose shares you wish to acquire is the most efficient method for acquiring those shares. Shares can be sold through a share transfer agreement, in which one shareholder purchases the shares of another shareholder, or through a company buy-back, in which the shares are returned to the company.
According to Section 38 of the 1994 Companies Act
One may transfer or sell shares at his or her discretion.
- First, either the transferor or the transferee must submit a request.
- Second, the document must be properly stamped and signed by the transferor and delivered to the transferee alongside the company.
- Thirdly, the company will send both parties a notice of refusal within one month of receiving the share transfer documents.
With a majority shareholding, shareholders who favor the sale could contemplate passing a special resolution at the annual general meeting to amend the company’s Articles of Association to include provisions mandating a sale of the shares. This sale will be deemed a sale at fair value, and the Articles of Association often contain a formula to determine how the valuation should be determined.
Alternatively, this can be accomplished through shareholders’ agreements. Although this type of agreement is uncommon in publicly traded companies, it is essential and a prerequisite for privately held businesses. This is due to the fact that minority shareholders can cause significant issues in a small business setting, particularly when they seek to sell or transfer their shares to third parties.
A shareholders’ agreement can stipulate certain conditions under which a shareholder must transfer shares to fellow shareholders or back to the company, primarily as a precaution against possible chaotic situations. For instance, some corporations reserve the right of first refusal to repurchase shares that pass to an heir upon the shareholder’s demise. Other agreements may compel a sale under different terms.
Typically, the agreement specifies the recompense that selling shareholders will receive for their shares. In certain instances, the payment the selling shareholders will receive will not necessarily reflect the current fair value of the shares, but rather a formula that all shareholders will have agreed upon when the agreement was initially signed.
A shareholder typically cannot compel another shareholder to sell their shares absent a contractual obligation allowing them to do so. For example, if the company’s Articles of Association, Shareholder Agreement, or another valid contract contains a provision authorizing such a sale.
Typically, negotiating with the shareholder whose shares you wish to acquire is the most efficient method for acquiring those shares. Shares can be sold through a share transfer agreement, in which one shareholder purchases the shares of another shareholder, or through a company buy-back, in which the shares are returned to the company.
If shareholders who favor the sale have a majority shareholding (i.e., 75% of the shares), they may contemplate passing a special resolution to amend the company’s Articles of Association to include provisions mandating a sale of the shares. Typically, this transaction would be a sale at fair value, and the Articles of Association will specify how the valuation should be determined.
A minority shareholder may, however, petition the court on the grounds of “unfair prejudice.” A minority shareholder’s unfair prejudice petition is typically initiated against the other shareholders personally, and they must typically use their own funds to defend themselves.
If amendments are unjustly prejudicial
When a court determines that amendments to the Articles of Association were made in good faith and in the best interests of the company, the court does not find that the amendments are unjustly prejudicial to a minority shareholder. However, if the motivation for altering the Articles is improper and not in the best interests of the company, the minority shareholder may be able to contest the change. Even if the amendment negatively affects or is intended to negatively affect a minority shareholder, it may still be legitimate if it is made in good faith and in the company’s best interests.
Whether the change is beneficial to the organization depends on whether a reasonable individual would consider it to be in the organization’s best interests. In recent case law, judges have determined that alterations to the Articles of Association that permit majority shareholders to acquire minority shareholders are not unjustly prejudicial.
However, it is essential to note that these rights were not introduced for the first time in these landmark cases. The majority shareholders sought to improve the clarity and consistency of the Articles of Association through a process of housekeeping. If such rights were being introduced for the first time, a minority shareholder’s claim for unfairly prejudicial conduct might be more likely to succeed.
To avoid litigation, especially litigation brought against shareholders personally, we emphasize that negotiation with the opposing party and the avoidance of such claims is almost always the preferable course of action. If shareholders decide to amend the Articles of Association, they must carefully consider their motives and ensure that their decisions are recorded in the minutes of the special resolution.
However, these agreements can also be detrimental to the interests of minority shareholders. Thus, the act provides a remedy for minority shareholders if they are unlawfully compelled to sell their shares or if they will suffer unanticipated harm to their interests.
Consequently, a minority shareholder has the legal right to petition the court for “unfair prejudice.” A minority shareholder’s unfair prejudice petition is typically initiated against the other shareholders personally, and they must typically use their own funds to defend themselves.
However, because a court determined that the amendments to the Articles of Association were made in good faith and in the best interests of the company, the court did not find that the amendments were unjustly prejudicial to a minority shareholder.
However, if the motivation for altering the Articles is improper and not in the best interests of the company, the minority shareholder may be able to contest the change. Even if the amendment negatively affects or is intended to negatively affect a minority shareholder, it may still be legitimate if it is made in good faith and in the company’s best interests.:
The laws are implemented to protect the rights of both parties, but they vary from situation to situation in order to protect the best interests of those who are most affected. The Bangladesh Companies Act of 1994, the Bangladesh Securities and Exchange Ordinance of 1969 (along with the Bangladesh Securities and Exchange Commission Act of 1993 and the rules made thereunder), the rules of the Dhaka Stock Exchange (DSE) and the Chittagong Stock Exchange (CSE), and the Company’s Articles of Association govern the majority of company matters in Bangladesh.
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Company formation and registration at Rahman TRW:
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