Becoming a partner in a company can (among other ways) occur through acquiring a business share in an already existing company based on a business share transfer agreement. This article explains how this process works and what to pay attention to.
If you are considering transferring your business share or acquiring one, we are happy to guide you through the process. Feel free to schedule a consultation.
- What is a business share?
- When can a shareholder transfer his business share?
- When can a shareholder transfer his business share?
- Due dilligence
- Business Share Transfer Agreement
- Effects of the Business Share Transfer
- Registration of Changes in the Commercial Register
- What to Watch Out for When Transferring a Business Share
- How We Can Assist You
What is a business share?
A business share represents the rights and obligations of a partner, reflecting his participation in the company.
When can a shareholder transfer his business share?
In general, a partner can transfer his business share to another partner with the approval of the General Meeting, unless otherwise specified in the Articles of Association.
A partner can also transfer his business share to someone outside the company if the Articles of Association allow it. In such cases, the Articles may require the General Meeting's consent.
When is a shareholder prohibited from transferring his business share?
The Commercial Code outlines situations where a partner cannot transfer his business share. This applies to situations where proceedings are initiated for the dissolution of a company, where the company has been dissolved by a court or based on a court decision, or where the company is subject to the effects of a bankruptcy declaration or approval of restructuring.
A shareholder cannot transfer his ownership interest to another shareholder or any other person if he is listed as a debtor in the register of issued authorizations for enforcement proceedings (i.e., if enforcement proceedings are being conducted against him). A person subject to enforcement proceedings cannot acquire an ownership interest either.
Due diligence
If you are interested in acquiring a business share, we recommend conducting due diligence before signing the transfer agreement. This involves a detailed audit of the company, identifying risks such as unfavourable contracts, ongoing or potential lawsuits, or the risk of fines. We recommend conducting this process with a lawyer, and we are here to assist you with the entire process.
Business Share Transfer Agreement
The Commercial Code specifies formal requirements for a business share transfer agreement. The agreement must be in writing, with signatures officially certified.
Regarding the substantive requirements, according to the Commercial Code, the acquirer who is not already a shareholder must declare in the contract for the transfer of the ownership interest that he agrees to adhere to the partnership agreement or, where applicable, the bylaws (if bylaws have been adopted). Additional terms may not be prescribed by Commercial Code but are advisable to include.
We recommend including especially the following:
- identification of the parties (transferor and acquirer),
- specification of the company whose business share is being transferred,
- specification of the transferred business share (size, proportion of the whole expressed as a fraction or percentage, the part of the share capital corresponding to the transferred business share and information on its redemption),
- whether the transfer is gratuitous or for consideration and, if the transfer is for consideration, information on the amount of the consideration or how it is determined, the terms of payment, etc,
- identification of the assets and liabilities of the company whose business share is being transferred (whether directly in the agreement or in an annex, it is recommended to include detailed information on the assets and liabilities of the company),
- representations and warranties (e.g. declarations by the transferor that the business share is not encumbered by third party rights, that there are no legal or administrative proceedings against the company whose business share is being transferred, that the company's accounts have been kept in accordance with the law, etc., depending on the circumstances of the particular case),
- confidentiality (we recommend that you also consider negotiating confidentiality obligations, e.g. in relation to sensitive internal information, consideration for the business share, etc.),
- competitive clause (we recommend that you also consider a non-compete in relation to the transferor as a former shareholder),
- other arrangements as appropriate to the particular circumstances (we always recommend considering the circumstances of the particular case and not relying on generic / model documents).
Effects of the Business Share Transfer
Under the Commercial Code, the effects of the transfer take place upon delivery of the transfer agreement to the company, unless a later effective date is agreed upon.
If consent from the General Meeting is required, the transfer only becomes effective after this approval.
Registration of Changes in the Commercial Register
Changes to the partner structure must be registered in the Commercial Register within 30 days of the agreement becoming effective.
The proposal must be accompanied by the business share transfer agreement and the approval of the general meeting of shareholders for the transfer of the business share (if required in the specific case). As the business share transfer agreement has legally changed the articles of association, a copy of the complete articles of association with the changes incorporated should also be attached. Compliance with the conditions of the transfer which is not apparent from the aforementioned annexes shall be demonstrated by the submission of an affidavit.
If there are other changes in the company in connection with the transfer of the business share (e.g. change of executive, appointment of a new executive, change of registered seat, etc.), further documents will be required, depending on the change in question.
In connection with changes in the company's shareholders, the registration of the change of the beneficiary owner in the commercial register, or in register of public sector partnersmay also be required
What to Watch Out for When Transferring a Business Share
If you are interested in acquiring a business share of an existing company, we recommend that you carefully study the articles of association, by-laws and/or other constituent documents of the company, especially in cases where you will not be the sole shareholder after the transfer of the business share. It may be, for example, that the articles of association do not allow for the intended transfer of the business share. In such cases, it is necessary to decide to amend the articles of association. In particular, take a good look at the arrangements concerning voting rights, profit distribution and the like.
We recommend that you also check the company in publicly available sources, you can check e.g. the Register of Deeds of the Commercial Register to find out e.g. whether the company has complied with the obligation to file financial statements, you can find out further information e.g. from the Register of Financial Statements or Commercial Gazette..
Please note that the transfer of the business share (whether from the perspective of the transferor or the transferee) also has a number of accounting and tax aspects, so we recommend that you also consult your accountant or tax adviser about the transfer.________________________________________
How We Can Assist You
- comprehensive legal services for entrepreneurs
- drafting of all legal documents (including the business share transfer agreement) necessary for the transfer of the business share
- registration of changes in the commercial register
- establishment of a company
- online, telephone or in-person consultation on your business