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Forcing a Sale of Shares in a Company
Once a person owns shares in a company it is very difficult under law to force them to sell their shares to either the other shareholders or the company. The main way to do this is through a deemed offer clause in the contract.
Why force a sale?
The reasons why shareholders may want to force another shareholder to sell their shares mostly relate to the removal of shareholders, explains Abigail Reynolds, Corporate and Commercial Law Attorney at Reynolds Attorneys. This could be due to:
The only way to force someone to sell their shares is by recording the terms for when this would arise in a contract and most common contract to record it in is a company’s memorandum of incorporation (MOI), or in a shareholders agreement. “The relevant clause is known as the deemed offer clause,” explains Reynolds, “because when a trigger event occurs, the shareholder to whom the event occurred is deemed to have offered his/its shares in the company for sale to the remaining shareholders.”
Some examples of common trigger events that result in a deemed offer include death; critical Illness or disability; termination of employment; administration issues; conviction of a criminal offence; fraud or dishonesty bringing a company into disrepute; gross misconduct; insolvency; breach of the MOI and/or the shareholders agreement; winding up; change of control of company; and change of beneficiaries of a trust.
There are a few ways that a deemed offer clause can be tailored to suit the requirements of the specific shareholders of the company:
It’s important to consider including the above in your company’s MOI or shareholders agreement to protect both the shareholders as well as the company itself.
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