How to Sell Shares in a Company: Complete Guide
Most businesses, when they are planning to dissolve, find it challenging to do and how to sell their shares. However, you can decide to sell a portion or the entire company as a business. Many reasons may lead to you selling the company, such as when you want to reduce the risk involved in the overall running of the company. Another reason is when you want to diversify the personal assets you have. However, the process of selling your company’s share can be challenging. You need to consider the employee share options scheme to ensure that the employees are taken care of. When preparing for succession, you can consider selling the shares to reduce the tax shock to the new upcoming owners. Whatever the reason, you can consider three options when selling the shares: the discounted market value, full market value, and the nominal value. This article will explore how to sell shares in a company.
- Consider the rights of the shareholders
When planning to sell the company, you must ensure that the rights of the shareholders are preserved as indicated in the article of association. The article of association contains the processes to be followed when selling the shares and the rights governing the business running. When planning to sell a portion or the entire company shares, the shareholders have the right of first refusal, also known as the preemption right, which enables them to buy shares before the third party with the same valuation offered to the third party. The shareholders may take this option or choose to waive their right to enable the third party to buy the shares as planned. This enables interested shareholders to buy the shares for the whole company or the portion of the shares on sale.
However, as the business owner, you also have a right to drag along and tag along the party, and you can choose to trigger them when necessary.
- The drag along right
The drag-along gives you the obligation to force the shareholders holding the minor shares to participate in the sale of the company and ensures that the buyer is buying the whole company’s shares, not just your shares.
- The Tag-Along Rights
The tag-along rights help minority shareholders to be tagged along in the sale of the company even if you don’t want them to participate in the selling. Often these two rights are triggered when planning to sell the entire company. Considering the rights of the shareholders helps ensure a smooth transition of the shares from the company to the buyer. It’s also essential to have the employee share options scheme to help ensure that your employee’s needs are catered for even when transacting. If you are selling a portion, considering them helps grow the business and motivates them, increasing productivity.
- Calculation of the Share Price
When planning to sell the company’s shares, it’s vital to ensure you make a reasonable calculation of the shares, and you can do this with the help of the shareholders and underwriters. To calculate the price of the shares, you need to evaluate the company’s value and divide it by the available shares to establish the price of every share. You must check with the article of association as it might dictate how the shares are to be calculated.
The shareholders’ agreement may propose using a particular formula for the calculation or propose a specific accounting company to help calculate the share price. However, irrespective of the method used, it’s important to note that the price will be subject to the negotiation made by the purchaser.
The share price will result from an agreement between you and the purchaser, which will bid on the deal’s completion. However, if the price is agreed upon according to the shareholders’ agreement, the share will be sold for a nominal value, and the process will end in filling out the stock transfer form.
- Follow the Correct Process
When selling the shares, your company will be under scrutiny by potential buyers. You will be required to avail all the information about the company, including the financial information and historical and current reports. You will be required to present the contracts and the technological systems in place that your company is indulging in. This information can sometimes jeopardize your company if you are not careful.
The buyer will require some warranties and guarantees that all the information you present is correct and no confidential company information is hidden. If some information about the company that may lead to its fall emerges and you didn’t say about you be helped accountable since that will be a breach of the agreement. These agreements are linked to reimbursement rights or compensation rights. The purchaser will be compensated in case of a breach.
However, some exceptions to the warranties might be indicated in a separate disclosure letter. For example, the warranties indicate that the company has no debt. Still, the disclosure letter might set an exception for this warranty and indicate that the company is in debt.
- Follow the Contractual Process
When selling the shares, you need to sign a contract of the share purchase agreement, which contains terms depending on the nature of the shares. This contract is a long and complex document, and you should ensure that every detail is correct before the signing. When selling fewer shares with nominal value, you will only be required to fill out the stock transfer form, which is not complicated compared to selling the whole company.
- Fill out The Stock Transfer Form
Once you have agreed on the price of the shares and the business terms, it’s time to sign the stock transfer form. This form contains details of the buyer, seller, price of the shares, and the number of shares sold. This is completed along with your signature as the transferer signature. This document can be downloaded and does not require registration with the company’s house. However, you must record the company’s annual confirmation statement with the new shareholdings.
Once the transaction is completed, the members should be updated, and the share certificates should be issued to the buyer. When selling all shares, you should note that there will be more requirements, such as transferring the physical sticks to the new buyer. You should research and ensure you have all it takes when selling the shares.