TRANSFER OF COMPANY SHARES IN A LIMITED LIABILITY COMPANY (LLC) THROUGH PURCHASE AND SALE
May 10, 2020
A company share represents the share of a partner of the property of a limited liability company (LLC). As a concept, the company share reflects the participation of one person (partner) in a company as a set of rights and obligations. The rights of the partner can be divided into two main categories – property rights and non-property rights, while the obligations arise mainly from the existing partnership relationship.
In accordance with the Commercial Act (CA), the company share can be a subject to a transfer. The transfer of company shares is regulated in Article 129 et seq. of the Commercial Act. The most common ways to transfer shares are through purchase and sale, exchange and donation. Acquisition of shares in a company can also be carried out through a procedure for increasing the capital of the company. The subject of this article will be the acquisition of a share through the most common method, i.e. purchase and sale.
The purchase and sale of company shares is carried out on the basis of a written contract, signed between the seller and the buyer. The contract, which serves as a basis for the transfer of shares, is of complex type. This contract transfers not only the rights previously held by the seller of the shares, but also the transfers the related responsibilities.
The contract for purchase and sale of company shares should be concluded with notary certification of the signatures of the parties and the content of the contract itself. When carrying out the purchase and sale, the rules established in the company contract of the respective company should be observed. In case the company shares are transferred between partners, the consent of the other partners is not required. In case the transfer of the shares is made to a third party, not participating in the company, then the latter should also submit an application to the company to be accepted as a partner in the company. In the application, which should be submitted to the company, the respective third party should state that he/she accepts the terms of the company’s Articles of Association and that he/she will comply with their provisions in the future.
After the contract for purchase and sale of the company shares has been signed and an application has been submitted by the buyer of the company shares to the General Meeting of the company, an amendment in the company’s Articles of Association should be made. This amendment is necessary because there has been a change in the register of the partners.
Very often in practice, there are cases in which the partner, who has transferred all his/her shares, also acts as a manager of the company. Following the transfer of the shares, that partner may have decided to terminate his/her activities in the company altogether, including as a manager. His/her dismissal as a manager and the appointment of a new manager should also be certified by a resolution of the General Meeting of the company. Very often, the acceptance of a new partner due to transfer of shares and dismissal of the transferring partner as a manager are made by one single resolution of the General Meeting.
At the end of 2017, a number of changes in the Bulgarian legislation were discussed and adopted, aiming to provide additional protection of the rights of employees in cases where employers do not pay them the due wages and benefits. There is a ban on the transfer of companies and company shares in case of existing debts.
New provisions were included in Article16 of the Commercial Act, according to which the registration of purchase and sale of company shares with the Commercial Register will be made only after submission of a declaration in a form signed by the transferor of the shares. The latter should state in that declaration that there are no outstanding and unpaid obligations under Article 15(4) of the CA. In addition, pursuant to Article 129( 2) of the CA, the manager of the company signs a declaration that there are no outstanding and unpaid obligations under Article 129(1) of the CA, namely: wages, benefits and compulsory social security contributions of employees, including employees whose employment relationship was terminated up to three years before the transfer of the shares.
After all the documents required by law regarding the purchase and sale of company shares have been prepared, they should be submitted to the Commercial register, which should reflect the transfer of shares at the company’s file. Only after it is registered, this transfer will be valid for all third parties. In addition to the documents, the preparation of which we explained above in this article, due to specifics of each individual case, it may be necessary to prepare and submit additional documents (if there is a foreign partner – legal entity, you shall need to present a certificate for good standing of that partner; notices of general meeting, etc.).
In case you are planning to transfer company shares through purchase and sale (irrespective of whether you are a seller or a buyer), do not hesitate to contact us for assistance via the email addresses listed in our „Contacts” section.
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