The transfer and transmission of shares in limited liability companies

Abstract

Transfer and transmission of shares in limited liability companies are key features that determine what each shareholder can do with the shares he holds. Shares give rights to each shareholder but such rights can be sometimes restricted in some manner. The issue of transfer and transmission of shares has been under crucial amendments in the field of company law from the enactment of the first law. Provisions with regard to the limited liability companies, both public companies and private companies, found their way in the Commercial Partnerships Ordinance and were later amended in 1995 with the enactment of the Companies Act. A crucial tool for the enactment of the Maltese Companies Act was the UK Companies Act 1985 which paved the way to Malta‘s accession to the European Union for the provisions found in the Companies Act to be already in consistence with the European Union Directives on Company Law. A fundamental distinction noted in the Maltese Companies Act between the public companies and private companies with regard to the transfer of shares is that in the case of private companies the Companies Act imposes an obligation on the first subscribers of the company to include some sort of restriction, no matter how minimal this can be, on such share transfer. The reason might be that private companies are usually family companies with blood ties and hence, the legislator wanted the members of these companies to control the entry of new members. The most popular types of restrictions usually found in the memorandum and articles of association of private companies are the pre-emption clause and the directors‘ discretion to refuse to register a share transfer. The pre-emption clause means that the shareholder has to offer his shares firstly to the members of the company where he is a shareholder and only upon their refusal he has a right to offer such shares to third parties at any price. On the other hand, the directors‘ discretion to refuse to register a share transfer has to be exercised in bona fide since they hold fiduciary duties with respect to the company but the directors are not obliged to give reasons for such refusal. These restrictions shall be laid down in the memorandum and articles of association in clear and unambiguous words that must lead to no doubt and confusion. However, there might also arise a situation where the shareholders, either all of them or some of them, of a particular company can decide to draw up a shareholders‘ agreement. An important notion to point out is that only those shareholders who sign such agreement must abide by it. Hence, this might lead to a situation where while the memorandum and articles of association only enlists the pre-emption clause, the shareholders‘ agreement can enlist more rigorous rules and restrictions that must be abided by those shareholders who decided to sign such agreement.