What happens if I transfer my shares without respecting the right of pre-emptive acquisition?

In limited liability companies, as a general rule, the transfer of shares is subject to a number of restrictions in order to protect the stability of the company by avoiding uncontrolled changes in the ownership of the share capital.

These limitations on the transfer of shares are a consequence of the closed nature of this type of company. In this type of company it is common for the shareholders to value joining the company on the basis of their personal characteristics and the relationship of trust that exists between them. For this reason, Article 107 of the Capital Companies Act (hereinafter referred to as the ‘LSC’) establishes a restrictive regime that allows existing shareholders to have the possibility to prevent the entry of unwanted persons into the share capital.

In this article, we review the steps to be followed in order to transfer shares in compliance with this restrictive regime and the consequences of non-compliance.

Voluntary inter vivos transfer of shares in companies

In order to carry out an inter vivos transfer of company shares, the first step to be taken is to determine whether we are dealing with a free transfer or whether, on the contrary, we are dealing with a transfer in which the restrictive regime is applicable.

In this regard, the aforementioned article 107 of the LSC states that the transfer of shares between shareholders, as well as in favour of close relatives (spouse, ascendants or descendants) or companies belonging to the same group as the transferor (art. 42 of the Commercial Code), is free, unless the articles of association provide otherwise.

How to transfer company shares to a third party while respecting the right of pre-emptive acquisition

On the other hand, a transfer in favour of any third party other than those listed in the preceding paragraph is subject to a pre-emptive acquisition right in favour of the other shareholders. Specifically, in these cases, the transfer of shares is governed by the following rules:

1. Prior notice to the directors: The shareholder wishing to transfer his shares must notify the directors in writing, specifying the characteristics of the shares, the number he wishes to transfer, the identity of the acquirer, the price and any other conditions that may be relevant. The communication must be made prior to the transfer operation.
2. Consent of the company: The General Meeting must approve the transfer by resolution. Approval is decided by ordinary majority, subject to the inclusion of the matter on the agenda.
3. Refusal of consent and right of pre-emptive acquisition: The company can refuse consent to the transfer if it identifies, by notarial notification, one or more shareholders or third parties interested in acquiring all of the shares under the same conditions as indicated by the transferor (price, form of payment, etc.). If the identity of an acquirer cannot be communicated, the general meeting may decide that the company itself should acquire the shares.
4. Price and terms of transfer: The price and form of payment shall be as agreed by the transferring shareholder. In the event that the planned transfer is not for valuable consideration, the acquisition price shall be the price set by mutual agreement between the parties and, failing this, the value shall be determined by an independent expert.
5. Time limit for formalising the transfer: The public transfer document must be signed within one month of the company’s notification of the acquirer.
6. Transfer in the absence of a response from the company: If no acquirer has been identified within three months of the communication of the intention to transfer, the shareholder may transfer the shares under the conditions initially communicated.

What are the consequences of not respecting the right of pre-emptive acquisition?

If the transfer of shares is subject to the restrictive regime, i.e. the right of pre-emptive acquisition in favour of the other shareholders and/or the company, non-compliance with the described formalities entitles both the company and any of the other shareholders to challenge the transfer, in which case the transfer could be declared ineffective (see SAP Toledo of 24 April 2018, ECLI:ES: APTO:2018:411).

Similarly, it is important to note that the communication referred to in article 107 of the LSC cannot be replaced by an a posteriori communication or a communication with incomplete information.

In short, the regime for the transfer of shares in limited liability companies seeks to balance the freedom of the shareholder to dispose of his shares with the need to protect the interests of the other shareholders and of the company itself.

To this end, the law establishes a system to prevent the entry of unwanted third parties by ensuring that existing shareholders have the opportunity to exercise their right of first refusal.

Failure to comply with the formal requirements stipulated by Article 107 of the LSC may lead to the nullity of the transfer, which underlines the importance of strictly respecting the legal procedure and any applicable statutory regulations. For this reason, appropriate legal advice is essential.

For this reason, Devesa has a large team of specialists who can advise our clients on all types of transfers, guaranteeing that they are carried out in compliance with all legal and fiscal requirements.

Do you need advice? Access our area related to the transfer of company shares:

Commercial and corporate law