What is a transfer of shares?

Whatever the legal form and nature of a company, a partner may decide to recover the funds invested. He can choose to sell them or give them to another person, either from outside or from the same company. However, to be valid, this decision must comply with very strict terms and conditions. These vary according to the nature of the company concerned. We invite you to discover here what a transfer of shares is and the formalities involved.

What is a company share?

Shares represent the capital available to a company. A transfer of shares is the act by which a partner disposes of his or her rights in the company’s capital. He may decide to sell or give all or part of them to another partner.

The seller is called the assignor, while the buyer becomes the assignee. The former leaves or reduces his stake in the company’s share capital while the latter joins. The purchaser now has voting and dividend rights at General Meetings.

It is important to note here that the term “social share” is used exclusively for :

• Limited liability companies (SARL),
• General partnerships (SNC),
• Limited partnerships (SCS),
• single-member limited liability companies (EURL).

It is also used in non-trading property companies. For other categories of company, the term “shares” is used.

When should you sell your shares?

There are a number of reasons for selling shares in a company. It applies when a partner decides to leave the company for conflictual or professional reasons. Likewise, the acquirer’s entry into the company can lead to a transfer.

It can also be used to sell or trade in the company’s capital. A partner may wish to recover some or all of his investment by selling his stake. In this situation, the company must sell its shares.

• Stages in the share transfer process
• To be valid, the transfer of shares must follow a clearly defined legal procedure.

Obtaining partners’ approval

To initiate this procedure, the seller must notify the other shareholders of the proposed sale. He can also inform the company’s managing director, who in turn can share the news with the others.

This notification may also come from the purchaser of the shares. It is sent by registered letter with acknowledgement of receipt or served by a bailiff. Following notification of this project, two options are available, depending on the type of company and the beneficiary concerned.

The first relates to free transfer and does not involve any approval procedure. A partner in a limited liability company cannot receive the same treatment as an outsider. Similarly, the conditions to be applied to someone close to the seller will differ from those for an unknown third party.

The SARL’s articles of association may require an approval clause, as is the case with SNCs and SCSs. In this case, the second option is to follow an approval procedure.

The managing director must call a shareholders ‘ meeting within 8 days of notification of the proposed transfer. It enables them to decide on the proposed sale. They have 3 months to respond.

If no response is received, approval is deemed to have been granted. Otherwise, a quorum is required to decide the outcome of the project. Approval must be given by a majority representing at least half of all the company’s shares. When the AGM authorizes the transfer, the transferor is notified of this decision by registered letter or by delivery against a receipt.

Drawing up the share transfer deed

When you sell or give your rights in the capital of a company, it is essential to draw up the deed of transfer. To be valid, it must contain certain information, including the identity of the transferor, the transferee and the company. In addition :

the number of shares sold,

the sale price,

the terms of payment,

proof of approval.

It can be drawn up by private agreement or notarized deed.

Amending the company’s articles of association

When shares are sold, the company’s share capital is redistributed. In such circumstances, an Extraordinary General Meeting is called to amend the company’s Articles of Association by voting.

The decision-making procedures during this process differ according to the legal form of the company. In the case of non-trading property companies (SCI), unanimous agreement of the partners is a prerequisite for any change in status.

For other types of company, on the other hand, the year of seniority influences the quorum. For those existing before August 4, 2005, the majority of associates must represent ¾ of the shares. When the company is younger than the first, the quota is ⅔ of the shares.

Registration of the share transfer deed

Once it has been drawn up, you must register it with the Service des Impôts des Entreprises (SIE). This must be done within one month of signing the contract. The SIE to be chosen in this process is that of the transferor or acquirer.

You pay a registration fee to the depository, which varies according to the price paid to acquire the company shares. In the case of SARLs, these duties are set at 3% of the sale price after application of an allowance.

The latter is 23,000 euros in proportion to the number of shares sold. On the other hand, this fee is 5% of the sale price in the case of SCIs with predominantly real estate assets. In principle, it is the transferee who pays the registration fees.

Once it has passed through the SIE, it is essential to register the deed of transfer with the clerk’s office of the Commercial Court. You deposit two copies and the updated status. Finally, you need to go to the court in the company’s place of residence for these formalities.

Enforceability of the assignment

There is a fundamental difference between opposability to the company and opposability to third parties. In order for the deed of sale to be enforceable against the company, you must complete one of the following formalities:

• submission of the transfer deed to the head office,
• approval of the sale by the company,
• acceptance of the deed by a bailiff.

In addition to this formality, the deed must be filed with the Trade and Companies Register. Similarly, 2 originals of the said deed must be filed with the clerk of the commercial court. It is only after this stage that the transfer of shares becomes enforceable against third parties.

What are the advantages of selling shares?

One of the very first benefits of this assignment is the transfer of ownership. Once the parties have exchanged their consents, the transferee becomes the owner of the transferred shares.

He or she thus becomes a partner in the company and acquires voting rights to take part in collective decisions. Having become a partner, he will now be subject to tax consequences and debt-related risks.

On the other hand, the transferor loses the title of partner as well as his rights in the company. He is no longer liable for the company’s debts. These conditions only apply when the shareholder sells all his shares.

The transfer of shares may lead to a change in the company’s bylaws. The identity of the new partner and the number of shares he or she holds must be mentioned. As a result, the name of the transferor has been removed from the bylaws.