Selling your shareholding

Pre-emption Rights

The problems faced in trying to realise the value of a shareholding in a Private Limited Company can be made all the more difficult by provisions in the Companies Articles or (if there is one) in a Shareholders Agreement.

In particular, it is very common to find that these documents contain further restrictions on the disposal transfer of shares.

For example, they may provide that only a certain class of individuals can hold shares in the Company (such as the relatives of the original shareholder(s)).

Most commonly, restrictions on the transfer of shares take the form of 'rights of pre-emption' whereby the shares which are to be sold / transferred must first be offered for sale to a prescribed class of individuals (normally the other remaining shareholders).

This is, in effect, a right of first refusal before the shares can be sold elsewhere or to someone who may be a 'stranger' to the remaining shareholders.