Can a private company set the price of share transfers?

[Rob]

The articles of this private ltd company state that owners of ordinary
shares who want to sell them must first offer them to the directors. I
did this but the CFO is insisting that the directors can only pay me the
nominal value. This happens to be many thousands of times lower than the
price at which they last issued preference shares. My main question is
whether the CFO is allowed to dictate a maximum price that the other
directors can pay for share transfers?

My secondary question is whether there is a way to get around this if
there is some tax advantage to keeping the share price low? Off-record
adjustments have been suggested. It has been surprisingly hard to pin
down the answers to these questions so any guidance about where to look
in the Companies Act, or the like, gratefully received. TIA

 

[Ronald Raygun]

The articles of this private ltd company state that owners of ordinary
shares who want to sell them must first offer them to the directors. I
did this but the CFO is insisting that the directors can only pay me the
nominal value. This happens to be many thousands of times lower than the
price at which they last issued preference shares. My main question is
whether the CFO is allowed to dictate a maximum price that the other
directors can pay for share transfers?

My secondary question is whether there is a way to get around this if
there is some tax advantage to keeping the share price low? Off-record
adjustments have been suggested. It has been surprisingly hard to pin
down the answers to these questions so any guidance about where to look
in the Companies Act, or the like, gratefully received. TIA

Doesn't "must first offer them to the directors" simply mean you must
give them first refusal? Obviously you want a realistic price for them,
and the only measure of what that is is what someone is prepared to pay
for them. If you can find an outside buyer prepared to offer you a
realistic price, then I presume you would be bound to offer them to the
directors *at that price*. If they decline your offer, you've discharged
your duty to let them have first refusal and should then be free to sell
them to the outsider.

Before seeking help in the body of the Companies Act, I suggest you'll
want to give the Articles a more thorough reading to see whether there
is any clarification of exactly what "must first offer to ..." means.

I suspect the CFO is confused and is saying what the position would
be if you sought to sell the shares *back to the company*. It seems
to me that selling them to *the directors personally* would be a
completely different matter.

 

[Rob]

Doesn't "must first offer them to the directors" simply mean you must
give them first refusal? Obviously you want a realistic price for them,
and the only measure of what that is is what someone is prepared to pay
for them. If you can find an outside buyer prepared to offer you a
realistic price, then I presume you would be bound to offer them to the
directors *at that price*. If they decline your offer, you've discharged
your duty to let them have first refusal and should then be free to sell
them to the outsider.

Before seeking help in the body of the Companies Act, I suggest you'll
want to give the Articles a more thorough reading to see whether there
is any clarification of exactly what "must first offer to ..." means.

I suspect the CFO is confused and is saying what the position would
be if you sought to sell the shares *back to the company*. It seems
to me that selling them to *the directors personally* would be a
completely different matter.

Thanks for your thoughts Ronald. Not being an accountant I am not
familiar with all the conventions used so your insight is valuable.

I have discovered that section 544 of the Companies Act says;
"The shares or other interest of any member in a company are
transferable in accordance with the company’s articles."
The trouble is that the Articles are written in such convoluted language
that it takes literally hours to determine what they mean. Reading them
yet again I suspect your interpretation may be correct.

One thing that is puzzling me is that this CFO said;
"for tax purposes, HMRC have valued Ordinary shares at their nominal
value as recently as two months ago".
What advantage could this possibly give the company?

He also said;
"Unfortunately for you, the nature of an early stage investment is that
it is only possible for you to sell your shares at a price agreed
between the Company and yourself."
Is this true and/or legal?

Another quote;
"For tax reasons that I won't go into the Company will not agree to
consider a price above that set by HMRC"
Is there a way, such as off-record adjustments, to get around this
obstacle the CFO is trying to place in my way?

TIA.

 

[tim....]

The articles of this private ltd company state that owners of ordinary
shares who want to sell them must first offer them to the directors. I did
this but the CFO is insisting that the directors can only pay me the
nominal value. This happens to be many thousands of times lower than the
price at which they last issued preference shares. My main question is
whether the CFO is allowed to dictate a maximum price that the other
directors can pay for share transfers?

Sometimes the shares will be issued with the restriction that they can only
be sold to other directors, full stop.

Whilst this does restrict the value somewhat, you should still expect to get
a reasonable value for them. The alternative is that you don't sell and
continue to gain the dividends and voting rights

tim

 

[Rob]

Sometimes the shares will be issued with the restriction that they can only
be sold to other directors, full stop.

Whilst this does restrict the value somewhat, you should still expect to get
a reasonable value for them. The alternative is that you don't sell and
continue to gain the dividends and voting rights

Thanks Tim. The Articles say something to the effect that if the
directors do not take up the offer of shares at "the Sale Price" then we
can offer them to a wider audience. The problem is defining "the Sale
Price". I am becoming increasingly convinced that the CFO is trying to
fob me off by saying that it has to be the nominal value.

Unfortunately there is no prospect of dividends from this company in the
foreseeable future.

 

[Ronald Raygun]

Thanks Tim. The Articles say something to the effect that if the
directors do not take up the offer of shares at "the Sale Price" then we
can offer them to a wider audience. The problem is defining "the Sale
Price". I am becoming increasingly convinced that the CFO is trying to
fob me off by saying that it has to be the nominal value.

Unfortunately there is no prospect of dividends from this company in the
foreseeable future.

Perhaps "the Sale Price" is the price at which they will eventually be
sold, be it to a director or to a member of the wider audience.

Is it not the case that your problem is that there is no wider audience?
After all, if there is no prospect of dividends, why would anybody want
to be interested in buying them?

 

[Rob]

Perhaps "the Sale Price" is the price at which they will eventually be
sold, be it to a director or to a member of the wider audience.

Is it not the case that your problem is that there is no wider audience?
After all, if there is no prospect of dividends, why would anybody want
to be interested in buying them?

It is a tech start-up company so the hope is that it will be purchased,
or float on AIM. I just want to raise cash but the response of the CFO
suggests that he is concerned that the company will run out of cash
before it gets there. Maybe my wish to sell shares is also a test of his
confidence. Maybe he does not want questions from the VCs who have
funded most of the research so far.

 

[Peter Saxton]

Thanks Tim. The Articles say something to the effect that if the
directors do not take up the offer of shares at "the Sale Price" then we
can offer them to a wider audience. The problem is defining "the Sale
Price". I am becoming increasingly convinced that the CFO is trying to
fob me off by saying that it has to be the nominal value.

Unfortunately there is no prospect of dividends from this company in the
foreseeable future.

"something to the effect" is not sufficient. What do the articles
actually say on the matter?

 

[Rob]

"something to the effect" is not sufficient. What do the articles
actually say on the matter?

Is that an offer? I did not want to take the time required to convert
the relevant section of the articles into digital format unless someone
is willing and able to interpret for me which are the important bits. It
would take me more than an hour to read typical company articles and
work out what are the important bits. If you are interested to do this I
am more than happy to post the relevant sections.

 

[tim....]

It is a tech start-up company so the hope is that it will be purchased, or
float on AIM. I just want to raise cash but the response of the CFO
suggests that he is concerned that the company will run out of cash before
it gets there.

I agree with Ronald. On this basis the shares are of no value today.

Maybe my wish to sell shares is also a test of his confidence.

But only if he has the money. If he doesn't have the money, he can be
absolutely 100% confident, but still won't be buying.

Maybe he does not want questions from the VCs who have funded most of the
research so far.

VCs normally take a closer interest than this. They will not walk away from
their initial investment just because the work costs more than expected.
They will have invested initially because they expected a five fold (or
more) return. If the development is still seen to be profitable there is
lots of scope for more funding.

tim

 

[Peter Saxton]

Is that an offer? I did not want to take the time required to convert
the relevant section of the articles into digital format unless someone
is willing and able to interpret for me which are the important bits. It
would take me more than an hour to read typical company articles and
work out what are the important bits. If you are interested to do this I
am more than happy to post the relevant sections.

Can't you scan the articles?

 

[Daytona]

Can't you scan the articles?

....and post them on somewhere like -
http://docs.google.com/
http://www.scribd.com/

the articles are a matter of public records, so no copyright issues.

 

[Rob]

Can't you scan the articles?

OK, what I hope are the relevant sections of the company articles are
posted below. Section 8 is about compulsory transfers which does not
apply to me.

An interesting coincidence this snowy morning was that I was about to
dig out the scanner when the postman did me an unintended favour. He
decided to reduce his workload by returning a letter to me to the sender
(the company lawyer). The lawyer Emailed me an electronic version instead.

If anyone is inclined to further what I would love to know is;

Can the company fix the price of its ordinary shares?

If it cannot, then what is my best procedure for selling them bearing in
mind the CFO does not want me to?

If there is a tax reason why the shares should stay valued at 1p each,
is there a legal mechanism to still get a reasonable price for them?

To get a sense of scale, I am hoping to raise about UKP 3k and the
company is finalising the raising of a further UKP 5M.


7. Non Mandatory Transfer of Shares

7.1
Subject to Article 7.11, unless the Investors acting by Investor
Majority agree in writing, none of the Shares of the Company shall be
transferred and the Directors shall not register any transfer of any
Shares of the Company except pursuant to this Article 7 and Article 8.

7.2
References in Article 7.12 to a transfer of any Share include a transfer
or grant of any interest in any Share or of any right attaching to any
Share, whether by way of sale, gift, holding on trust, charge, mortgage
or pledge, or in any other way, and whether at law or in equity, and
also include an agreement to make any such transfer or grant or to
exercise the voting rights attaching to a Share at the direction of any
third party.

7.3
Every holder of Shares who wishes to transfer all or any of his Shares
or to dispose of any interest therein (such holder being hereinafter
referred to as a “Vendor”) shall serve on the Directors of the Company a
notice in writing of his wish so to do accompanied by the relevant share
certificate. Such notification (hereinafter called a “Transfer Notice”)
shall state the number of Shares which the Vendor desires to transfer or
dispose of and shall constitute the Directors his agents for the sale of
such Shares (hereinafter called “the Sale Shares”) at the Sale Price (as
defined in Article 7.9). The Transfer Notice shall also give details of
the person, if any, to whom the Vendor wishes to transfer the Sale
Shares in the event that no purchaser shall have been found pursuant to
Articles 7.4 to 7.6 (both paragraphs inclusive). Save as provided in
Article 7.5, a Transfer Notice once given or deemed to be given shall
not be capable of being withdrawn. A Transfer Notice may include any
number of Shares and, if such number is more than one, shall operate as
if it were a separate notice in respect of every Share comprised therein
Provided that a Vendor may specify in the Transfer Notice that it is
conditional on a minimum number of Sale Shares (“the minimum sale
number”) therein specified being transferred and in such case such
Transfer Notice shall operate accordingly and take effect in accordance
with the provisions of Article 7.5.

7.4
Within 14 days after a Transfer Notice has been received by the
Directors or is deemed to have been given or, if later, within 7 days
after the Sale Price shall have been determined the Directors shall
offer the Sale Shares giving details in writing of the number of the
Sale Shares and the Sale Price to the holders of the same class of
Shares (other than the Vendor) pro-rata as nearly as may be in
proportion to the number of Shares then held by such holders, and
inviting each such shareholder to state in writing within 14 days from
the date of the offer notice whether he is willing to purchase any of
the Sale Shares at the Sale Price and, if so, the maximum number
thereof. The Directors shall also give details to the holders of the
then existing Shares (other than the Vendor) of the person, if any, to
whom the Vendor wishes to transfer the Sale Shares in the event that no
purchaser shall have been found pursuant to Articles 7.4 to 7.6 (both
paragraphs inclusive). If, after all applications for Sale Shares from
the holders of such class of Share have been satisfied, there are any
Sale Shares remaining, such Sale Shares shall be offered to the holders
of any other class of share pro-rata as nearly as may be in proportion
to the number of Shares then held by such holders by notice in writing
from the Directors inviting each such shareholder to state in writing
within 14 days from the date of the offer notice whether he is willing
to purchase any of the Sale Shares at the Sale Price and, if so, the
maximum number thereof. At the expiration of the said period the
balance of any Sale Shares offered to the holders of all classes of
Shares but not so accepted shall, subject as provided below, be offered
to the holders of the Shares who have accepted all the Shares to which
they are respectively entitled who shall, if more than one, be entitled
to purchase such balance of Shares in the proportion as nearly as the
circumstances will admit to the number of Shares (including any accepted
pursuant to the foregoing provisions of this paragraph) then held by
each of them respectively. Such further offer shall be deemed to have
been refused if not accepted within 14 days of the date of the offer.
Provided that no such further offer shall be required if the holders of
Shares who have accepted all the Sale Shares to which they are
respectively entitled shall have also accepted (or otherwise stated
their willingness to purchase) further Sale Shares such that purchasers
shall have been found for all the Sale Shares (and if such acceptances
have been received for an aggregate maximum number of Shares in excess
of the number of Sale Shares available for further purchase such
acceptances shall be scaled down pro-rata as nearly as the circumstances
may admit in the proportions which such shareholders have accepted any
such further Sale Shares). Where this proviso applies, the shareholders
concerned shall be deemed to have accepted and offered to purchase the
further Sale Shares which they are entitled to accept in accordance with
the provisions of this proviso, such offer and acceptance being deemed
to have been made at the expiration of the period of 21 days referred to
in the preceding provisions of this Article 7.4.

7.5
The Directors shall as soon as practicable after the expiration of the
above periods give notice to the Vendor of whether members have been
found willing to purchase at least the minimum sale number of Sale
Shares. If such notice shall state that members have not been found
willing to purchase at least the minimum sale number of Sale Shares, the
following provisions of this Article shall not apply and the Transfer
Notice shall be treated as withdrawn. If such notice shall state that
members have been found who are willing to purchase at least the minimum
sale number of Sale Shares, the notice shall state the name and address
of each proposed purchaser and the number of Shares agreed to be
purchased by him. If the Directors shall have found members willing to
purchase some (not in any event being less than any minimum sale number
specified in the Transfer Notice) but not all of the Sale Shares, the
Vendor may within 21 days of the receipt of such notice from the
Directors give a counter-notice in writing to the Directors withdrawing
the Transfer Notice. If the Directors shall under the preceding
paragraphs of this Article have found members willing to purchase all
the Sale Shares or if no such counter-notice shall have been given by
the Vendor within the aforesaid period, the Vendor shall be bound, on
receipt of the Sale Price per Share, to transfer the Sale Shares (or
such of the same for which the Directors shall have found purchasers) to
the purchasers specified by the Directors in accordance with this
Article. The purchase shall be completed as soon as reasonably
practicable at a place and time to be appointed by the Directors when,
against payment of the Sale Price for each Share and any relevant stamp
duty, the purchaser(s) shall be registered as the holder(s) of the
relevant Shares in the Register of Members of the Company and share
certificate(s) in the names of such purchaser(s) and in respect of the
relevant Shares shall be delivered.

7.6
If the Vendor, after having become bound to transfer any Sale Shares to
a purchaser, makes default in so doing, the Directors shall authorise
some person to execute any necessary transfer of the Sale Shares in
favour of the purchaser and shall enter the name of the purchaser in the
Register of Members as the holder of such of the Sale Shares as shall
have been transferred to him as aforesaid. The Company shall receive
the purchase money on behalf of the Vendor but shall not be bound to
earn or pay interest thereon. The receipt of the Company for the
purchase money shall be a good discharge to any purchaser who shall not
be bound to see to the application thereof, and after the name of the
purchaser has been entered in the Register of Members in purported
exercise of the aforesaid powers the validity of the proceedings shall
not be questioned by any person.

7.7
If by the end of the applicable periods specified in Article 7.4 the
Directors shall not have found purchasers for all the Sale Shares
pursuant to this Article and the Vendor shall not have given a
counter-notice as referred to in Article 7.5, the Vendor shall be at
liberty to sell and transfer all or any of the Sale Shares for which no
purchasers shall have been found at any time within the following
3 months to the person, if any, specified in the Transfer Notice as the
person to whom the Vendor wishes to transfer the Sale Shares or, if no
such person is specified, any person or persons in pursuance of a bona
fide sale in each case at any price not being less than the Sale Price.
Provided that the Directors shall require to be satisfied that such
Shares are being transferred in pursuance of a bona fide sale for a
consideration not being less than the Sale Price without any deduction,
rebate or allowance whatsoever to the purchaser and if not so satisfied
they shall refuse to register the transfer or instrument concerned.

7.8
For the purpose of ensuring that a transfer of Shares is in accordance
with the foregoing provisions of this Article and duly authorised
hereunder or for the purpose of ascertaining when a Transfer Notice is
deemed to have been given hereunder the Directors may require any
member, the legal personal representatives of a deceased member, the
trustee in bankruptcy of a bankrupt member or the liquidator of any
corporate member or any person named as transferee in any transfer
lodged for registration to furnish to the Company such information and
evidence as the Directors may think fit regarding any matter they deem
relevant to such purpose. Failing such information or evidence being
furnished to the satisfaction of the Directors within a reasonable time
after such request or if any such information or evidence discloses that
a Transfer Notice ought to be given in respect of any Shares, the
Directors shall refuse to register the transfer in question and shall be
entitled to serve a Transfer Notice in respect of the Shares concerned
and the provisions of these Articles shall take effect accordingly.

7.9
For the purposes of this Article the expression “the Sale Price” shall
mean the price per Share (if any) specified in the Transfer Notice or
(if no such price is so specified) the fair value per Share as the
Vendor and the Directors shall agree or failing agreement as the
Auditors acting as experts and not as arbitrators shall state in writing
to be in their opinion the fair selling value of the Sale Shares on the
open market having regard to the fair value of the business of the
Company as a going concern and on the basis of an “arm’s length”
transaction as between a willing vendor and a willing purchaser but
disregarding the fact that the Sale Shares may comprise only a minority
holding in the Company. The determination of the Auditors shall be
final and binding on all concerned. The cost of obtaining the
certificate of the Auditors shall be borne by the Company and the Vendor
in equal proportions. The Directors shall procure that a copy of the
auditor’s certificate is sent to the Vendor as soon as practicable after
the issue thereof.

7.10
Notwithstanding anything contained in these Articles, the Directors may
decline to register any transfer of any Share on which the Company has a
lien and shall refuse to register any proposed transfer of a Share other
than a transfer made pursuant to or permitted by the provisions of
Articles 7.2 to 7.9 (both Articles inclusive).

7.11
Any Sale Shares sold pursuant to Articles 7.2 to 7.6 shall be
transferred free from any claims, equities, liens and encumbrances
whatsoever and with all rights attached to the Sale Shares as at the
date of service of the Transfer Notice, but without the benefit of any
other warranties or representations whatsoever.

7.12
Notwithstanding any other provision of these Articles:

7.12.1
a transfer of any shares in the Company may be made without restriction
as to price or otherwise (and any such transfers shall be registered
by the Directors) between any Investor who is:
(i) a person whose principal business is to make, manage or advise upon
investments in respect of one or more Investment Funds (an "Investment
Manager"); or
(ii) a fund, partnership, company, investment trust, syndicate or other
entity whose principal business is to make investments and whose
business is managed by an Investment Manager ("Investment Fund"); or
(iii) a nominee of an Investment Manager of an Investment Fund; and
where that Investor is an Investment Manager or a nominee of an
Investment Manager:
(i) any participant or partner in or member of any Investment Fund in
respect of which the shares are to be transferred are held (but only in
connection with the dissolution of such Investment Fund or any
distribution of assets of the Investment Fund pursuant to the operation
of the Investment Fund in the ordinary course); or
(ii) any Investment Fund whose business is managed by the Investment
Manager who is or whose nominee is the transferor; or
(iii) any other Investment Manager who manages the business of the
Investment Fund in respect of which the shares are held; or
where that Investor is an Investment Fund or nominee of an Investment Fund:
(i) any participant or partner in or member of the Investment Fund which
is or whose nominee is the transferor (but only in connection with the
dissolution of such Investment Fund or any distribution of assets of the
Investment Fund pursuant to the operation of the Investment Fund in the
ordinary course); or
(ii) any other Investment Fund whose business is managed by the same
Investment Manager as manages the Investment Fund which or whose nominee
is the transferor; or
(iii) the Investment Manager who manages the business of the Investment
Fund which is or whose nominee is the transferor

7.12.2
A member of the City Group may transfer any or all of its Shares in the
Company to any other member of the City Group or to any company or
organisation wholly owned directly or indirectly by the University Fund
(Company number xxxxxxx) or by the University for any reason whatsoever.

7.12.3
Any person within the definition of Cxxxxx Capital may transfer all (but
not some only) of its Shares in the Company to:
any company in the Cxx Group;
any shareholder(s) of any company in the Cxx Group;
any beneficial owner of Shares held by any person within the definition
of City Capital as a nominee for such person,
(each a "Cxx Group Permitted Transferee")

7.12.4
Any Cxx Permitted Transferee may transfer all (but not some only) of the
Shares in the Company held by it to any person within the definition of
City Capital or any other Cxx Permitted Transferee.

7.12.5
Ixx may transfer any or all of its Shares in the Company to any company
in the Ixx Group or XX Capital (“Ixx Permitted Transferee”), provided
always that there shall not be more than three registered holders of the
Shares issued to Ixx without the prior written consent of the Board
(such consent not to be unreasonably withheld).

7.12.6
Any Ixx Permitted Transferee may transfer any of the Shares in the
Company held by it to Ixx or any other Ixx Permitted Transferee),
provided always that there shall not be more than three registered
holders of the Shares issued to Ixx without the prior written consent of
the Board (such consent not to be unreasonably withheld).

7.12.7
A holder of:
B Preferred Shares may transfer the legal and beneficial interest in any
B Preferred Share to another holder of B Preferred Shares;
D Preferred Shares may transfer the legal and beneficial interest in any
D Preferred Share to another holder of D Preferred Shares;
E Preferred Shares may transfer the legal and beneficial interest in any
E Preferred Share to another holder of E Preferred Shares.

7.12.8
A holder of any share (being a company) may transfer the entire legal
and beneficial interest in any share to an Associate.

7.12.9
Any member (being an individual) may transfer all or any of its Shares
in the Company to:
(i) a Privileged Relation (but if a Privileged Relation whilst it is a
member shall cease to be a Privileged Relation it shall be deemed to
have given a Transfer Notice in respect of all the Shares held by it
pursuant to Article 9 below);
(ii) trustees to be held upon a Family Trust of which he is the settlor;
(iii) any trustees upon a Family Trust:
(A) on any change of trustees, to the new trustees of that Family Trust;
(B) to the settlor or to another Family Trust of which the original
member is the settlor or to any Privileged Relation of the settlor.

7.12.10
At any time prior to 31 December 2010, Sxxx may transfer all (but not
some only) of their Shares to any bona fide third party Financial
Institution, without being subject to any restrictions contained in
these Articles and the directors shall register such transfer; provided
that Sxxx shall not transfer their Shares pursuant to this Article
7.12.10 to any trade competitor of the Company or to any Financial
Institution which has an interest in a trade competitor of the Company
(the “Sxxx Permitted Transferee”).

7.13
The Deferred Shares, if any, shall not be capable of transfer to any
party save for a transfer pursuant to Articles 7.12.8 or 9 or on an
acquisition by the Company.

7.14
If any permitted transferee of a member pursuant to the provisions of
Articles 7.12.1 to 7.12.10 (inclusive) shall cease to be a permitted
transferee of such member, it shall within 14 days of ceasing to be such
a permitted transferee transfer its shares back to that original member
or to any other permitted transferee of such member and if it shall fail
to do so within such period, there shall be a deemed Transfer Notice
issued on the day immediately following the expiry of such period in
respect of all the Shares then held by such former permitted transferee
at nominal value and the provisions set out in Articles 7.1 to 7.11
shall apply.



9. Drag Along

If an offer or offers in writing are made by or on behalf of any bona
fide third party purchaser (“Offeror”) for Shares in the capital of the
Company on the same terms in respect of all the shares of any class
which would result in a change of control ("Qualifying Offer") and an
Investor Majority wish to accept such offer (“Accepting Shareholders”),
the provisions of this Article 9 shall apply.
The Accepting Shareholders may give written notice (“Drag Along Notice”)
to the remaining holders of Shares (“Other Shareholders”) of their wish
to accept the Qualifying Offer and the Other Shareholders shall
thereupon become bound to accept the Qualifying Offer and to transfer
the Shares registered in their name to the Offeror (or his nominee) with
full title guarantee on any date specified by the Accepting Shareholders
at the consideration per share payable by the Offeror. The Accepting
Shareholders may specify more than one date in its notice if necessary
for ensuring that the rights to acquire the shares become exercisable.
If any Other Shareholder makes default in transferring their Shares
under Article 9.2 within 5 Business Days of being required to do so, the
Directors shall authorise some person to execute any necessary
transfer(s) of the Shares held by the Other Shareholder and other
documents necessary to accept the Qualifying Offer on the Other
Shareholder’s behalf in favour of the Offeror and, where the Qualifying
Offer provides for any election to be made between any forms of
consideration to make the relevant election on behalf of that Other
Shareholder against receipt by the Company (on trust for such Other
Shareholder) of the consideration payable for the Shares transferred,
shall enter the name of the Offeror in the Register of Members as the
holder of such Shares.
The consideration (in cash or otherwise) for which the Other
Shareholders shall be obliged to sell their Shares shall be that to
which they would be entitled if the total consideration proposed to be
paid by the Offeror were distributed to the holders of the Shares held
by both the Accepting Shareholders and the Other Shareholders in
accordance with the provisions of Article 3.1 save that the
consideration for which the holder(s) of any Deferred Shares shall be
obliged to sell their Deferred Shares shall be the par value of such
Deferred Shares.
References in Article 9 to “Other Shareholders” include those persons
who acquire shares pursuant to options or other rights held at the date
of acceptance of the Qualifying Offer by the Accepting Shareholders.
The obligation on Shareholders to accept the Qualifying Offer in Article
9.2 shall extend to shares acquired pursuant to such options or other
rights.
The rights of pre-emption set out in these Articles shall not arise on
any transfer of shares to an Offeror (or as they may direct) pursuant to
a sale in respect of which a Drag Along Notice has been duly served.


10. Tag Along

No sale or transfer of any Shares conferring the right to attend and
vote at general meetings of the Company shall, if resulting (if made and
registered) in a person (or persons) whether or not such person (or
persons) is a member of the Company on the date of adoption of these
Articles obtaining or increasing a Controlling Interest in the Company,
be made or registered unless the proposed transferee or transferees or
his or their nominees:
are independent third parties acting in good faith;
have first offered to purchase all of the issued Shares of the Company
and all Shares which are the subject of any options granted by the
Company under the Share Option Scheme or otherwise and in respect of
which such options have vested (or will have vested at the time of
completion of the transfer of the Shares pursuant to the offer if
accepted) in accordance with their terms; and
has or have allocated the consideration payable for all the shares it is
purchasing and offering to purchase in the same manner as if the
consideration was to be paid to the selling shareholders in accordance
with the provisions of Article 3.

 

[Rob]

...and post them on somewhere like -
http://docs.google.com/
http://www.scribd.com/

the articles are a matter of public records, so no copyright issues.

I was contemplating buying them from Companies House like anyone else
could but then the lazy postman did me a favour as mentioned in my other
post. The thing is I do not want to make it too obvious what company I
am talking about just in case the directors take exception to what I
have said in this thread. No point in making enemies before you have to.

 

[Fergus O'Rourke]

[snip]

7.9
For the purposes of this Article the expression “the Sale Price” shall
mean the price per Share (if any) specified in the Transfer Notice or (if
no such price is so specified) the fair value per Share as the Vendor and
the Directors shall agree or failing agreement as the Auditors acting as
experts and not as arbitrators shall state in writing to be in their
opinion the fair selling value of the Sale Shares on the open market
having regard to the fair value of the business of the Company as a going
concern and on the basis of an “arm’s length” transaction as between a
willing vendor and a willing purchaser but disregarding the fact that the
Sale Shares may comprise only a minority holding in the Company. The
determination of the Auditors shall be final and binding on all concerned.
The cost of obtaining the certificate of the Auditors shall be borne by
the Company and the Vendor in equal proportions. The Directors shall
procure that a copy of the auditor’s certificate is sent to the Vendor as
soon as practicable after the issue thereof.

[snip]

Does this not answer all of your questions ?

 

[Rob]

[snip]

7.9
For the purposes of this Article the expression “the Sale Price” shall
mean the price per Share (if any) specified in the Transfer Notice or (if
no such price is so specified) the fair value per Share as the Vendor and
the Directors shall agree or failing agreement as the Auditors acting as
experts and not as arbitrators shall state in writing to be in their
opinion the fair selling value of the Sale Shares on the open market
having regard to the fair value of the business of the Company as a going
concern and on the basis of an “arm’s length” transaction as between a
willing vendor and a willing purchaser but disregarding the fact that the
Sale Shares may comprise only a minority holding in the Company. The
determination of the Auditors shall be final and binding on all concerned.
The cost of obtaining the certificate of the Auditors shall be borne by
the Company and the Vendor in equal proportions. The Directors shall
procure that a copy of the auditor’s certificate is sent to the Vendor as
soon as practicable after the issue thereof.

[snip]

Does this not answer all of your questions ?

At first I thought it did so I composed a Transfer Notice saying I would
like to sell x shares for y pounds and sent it to the CFO. I explained
that I did not know who all the directors were so I asked him to see if
any of them were interested at the "Sale Price" that I set. He replied
saying that the company had to agree the "Sale Price" and that it had to
be 1p. I thought that did not sound right so I decided to ask here to
try and confirm who is correct. It appears he is trying to fob me off so
my next letter to him needs to have a good foundation otherwise he will
just come up with another excuse. Hence the questions in my previous
post. Getting an auditor involved is not really an option because if
they agree with the CFO the sale price will be trivial compared to the
audit fees.

 

[Paul Harris]

At first I thought it did so I composed a Transfer Notice saying I
would like to sell x shares for y pounds and sent it to the CFO. I
explained that I did not know who all the directors were so I asked him
to see if any of them were interested at the "Sale Price" that I set.
He replied saying that the company had to agree the "Sale Price" and
that it had to be 1p.

He is wrong, look to the definition in the Articles which state:
For the purposes of this Article the expression “the Sale Priceâ€
shall mean the price per Share (if any) specified in the Transfer Notice
or (if no such price is so specified) the fair value per Share as the
Vendor and the Directors shall agree or failing agreement as the
Auditors acting as experts and not as arbitrators shall state in writing
to be in their opinion the fair selling value of the Sale Shares on the
open market having regard to the fair value of the business of the
Company as a going concern and on the basis of an “arm’s lengthâ€
transaction as between a willing vendor and a willing purchaser but
disregarding the fact that the Sale Shares may comprise only a minority
holding in the Company.

I thought that did not sound right so I decided to ask here to try and
confirm who is correct. It appears he is trying to fob me off so my
next letter to him needs to have a good foundation otherwise he will
just come up with another excuse. Hence the questions in my previous
post. Getting an auditor involved is not really an option because if
they agree with the CFO the sale price will be trivial compared to the
audit fees.

If they decline to purchase at the Sale Price you still need to find
someone who is willing to buy the shares at that price. The Sale Price
should be set at a level that you reasonably believe that you can
achieve on the open market or this is a pointless exercise. Do you have
a potential buyer and have you checked what they are willing to pay?

 

[Rob]

If they decline to purchase at the Sale Price you still need to find
someone who is willing to buy the shares at that price. The Sale Price
should be set at a level that you reasonably believe that you can
achieve on the open market or this is a pointless exercise. Do you have
a potential buyer and have you checked what they are willing to pay?

Something I read somewhere left me with the impression I should go
straight for the Transfer Notice. That did not work so what I am
thinking of doing now is to dig out the addresses of all the other
ordinary share holders and write to them to see if any want to purchase
more shares.

Something else that puzzled me is why the Articles (7.9) talk about
using an Auditor to determine the Sale Price. Is it not a simple matter
of the purchaser deciding how much they think the shares are worth and
the vendor deciding if they will accept that price?

 

[Paul Harris]

Something I read somewhere left me with the impression I should go
straight for the Transfer Notice. That did not work so what I am
thinking of doing now is to dig out the addresses of all the other
ordinary share holders and write to them to see if any want to purchase
more shares.

That is correct, I have quoted the section below. I would suggest that
you follow the instructions and send that notice to them care of the
Company Registered Office.
Quote:
Every holder of Shares who wishes to transfer all or any of his Shares
or to dispose of any interest therein (such holder being hereinafter
referred to as a “Vendorâ€) shall serve on the Directors of the
Company a notice in writing of his wish so to do accompanied by the
relevant share certificate. Such notification (hereinafter called a
“Transfer Noticeâ€) shall state the number of Shares which the Vendor
desires to transfer or dispose of and shall constitute the Directors his
agents for the sale of such Shares (hereinafter called “the Sale
Sharesâ€) at the Sale Price (as defined in Article 7.9). The Transfer
Notice shall also give details of the person, if any, to whom the Vendor
wishes to transfer the Sale Shares in the event that no purchaser shall
have been found pursuant to Articles 7.4 to 7.6 (both paragraphs
inclusive).

Something else that puzzled me is why the Articles (7.9) talk about
using an Auditor to determine the Sale Price. Is it not a simple matter
of the purchaser deciding how much they think the shares are worth and
the vendor deciding if they will accept that price?

You may determine the price at which you are willing to transfer the
shares or you may determine with the Directors a fair value. The use of
an auditor to determine value is there as an option if you cannot agree
a fair value with the Directors. The point of having a fair value is
that the price is one at which it can be reasonably anticipated that
other shareholders will be willing to consider purchase.

If you wish to set your own price without regard to this then the shares
should be offered pro rata to existing shareholders as defined in the
articles but there is no compunction on them to purchase them. Unless
you have a private purchaser lined up then it may be a pointless
exercise if the price is set too high which is why the Articles express
a means of determining fair value...



There are a number of options listed in 7.9
Quote:
For the purposes of this Article the expression “the Sale Priceâ€
shall mean the price per Share (if any) specified in the Transfer Notice
or (if no such price is so specified) the fair value per Share as the
Vendor and the Directors shall agree or failing agreement as the
Auditors acting as experts and not as arbitrators shall state in writing
to be in their opinion the fair selling value of the Sale Shares on the
open market having regard to the fair value of the business of the
Company as a going concern and on the basis of an “arm’s lengthâ€
transaction as between a willing vendor and a willing purchaser but
disregarding the fact that the Sale Shares may comprise only a minority
holding in the Company. The determination of the Auditors shall be
final and binding on all concerned. The cost of obtaining the
certificate of the Auditors shall be borne by the Company and the Vendor
in equal proportions. The Directors shall procure that a copy of the
auditor's certificate is sent to the Vendor as soon as practicable after
the issue thereof.

 

[Ronald Raygun]

Something I read somewhere left me with the impression I should go
straight for the Transfer Notice. That did not work so what I am
thinking of doing now is to dig out the addresses of all the other
ordinary share holders and write to them to see if any want to purchase
more shares.

Something else that puzzled me is why the Articles (7.9) talk about
using an Auditor to determine the Sale Price. Is it not a simple matter
of the purchaser deciding how much they think the shares are worth and
the vendor deciding if they will accept that price?

Indeed it is, but bear in mind that although you are obliged to sell the
shares to the directors in preference to anyone else, the directors are
not obliged to buy the shares from you. It may, however, be in their
interest to do so if humanly possible (this being a private company there
is a benefit to keeping the shares in the family, so to speak).

In theory what you could do is claim to have an outside buyer who is
prepared to offer you a very good price, and you could then invite the
directors to match it. If the directors are desperate enough not to
let shares fall into the hands of outsiders, they may be inclined to
offer you what you're asking, but this gives you the opportunity to rip
them off by simply inventing this convenient outsider, and the price.

The directors may smell a rat and simply call your bluff and decline to
buy. But unless they're sure you were bluffing, this could backfire on
them and if you really do have a buyer, then you could just sell.

Hence the need for some independent valuation. After all, even if you
did have a real buyer lined up, he might not be willing to disclose his
offer price, or even his indentity, to anyone else before negotiations
are completed, so would not be able to corroborate your claim.