Sale of Shares by Exiting Director
Shares are sold by a director/ owner of a business to the remaining director/ owner.
- overrides pre-existing agreements such as shareholder agreements
- formulae for calculating entitlements to buyer/ seller
- Handover of business assets
- Tax liabilities
- Releases and indemnities
Suitable for a director ‘selling out’ to a co-director in a company.
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Share Sale Agreements
Shares are sold for a variety of reasons Quite often what a client begins to describe as a simple transfer of shares in fact becomes a sale of business, with one business partner selling out to another. Often the reason for selling shares is that one of the shareholder / directors in a company decides to leave the business.
In addition to selling the shares in the company, the exiting director also wishes to get out of collateral contracts such as the lease of the premises from which the business is conducted and directors guarantees.
A well drafted share sale agreement will not only effectively transfer title in the shares but also protect the rights of the party leaving the business from ongoing liabilities, and leave the remaining parties with ownership of the business assets.
Sale shares v sale of business
Selling a business may be effected by selling the shares of the company that owns the business or selling the assets of the business. A sale of the assets of the business is the most common practice. The new owner does not need to concern themselves with the history of the company and whether it has complied with statutory obligations or paid the right amount of tax. This guide covers the sale of shares. Sale of business assets is covered in a guide dedicated to that topic.
Share sales are characteristically evidenced by an Agreement for Sale of Shares – a detailed agreement containing all the terms and conditions of sale. As in a sale of business assets or property, the agreement contemplates a three-step process in the sale of shares:
(a) Signing and exchange of contracts (in this case the Agreement for Sale of Shares);
(b) A period in which adjustments are made and accounts prepared in readiness for settlement; and
(c) Settlement, where a final payment is made in exchange for signed Share Transfer, Share Certificate and any other documents evidencing title to the shares and ownership of the business.
After the share sale is complete, the transaction must be notified to ASIC. The form to use is ASIC Form 484.