Please note that the information provided herein is not legal advice and is provided for informational and educational purposes only. If you need legal advice with respect to transferring shares from a limited liability company or amending a corporation’s articles of incorporation, you should seek professional assistance (e.g. make a post on Dynamic Lawyers). We have Toronto and Ottawa business lawyers registered on the website who can answer your questions or help you with your Ontario or Federal corporation.
So you want to sell your shares, eh? Well, the first step to actually selling your shares is to determine if the corporation’s Articles of Incorporation have anything to say about transferring the shares.
Many a time, you’ll find standard boilerplate language that says the following in part 8 of the Ontario corporation’s Articles of Incorporation:
The right to transfer shares of the Corporation shall be restricted in that no shareholder shall be entitled to transfer any share or shares of the Corporation without the approval of:
1. The directors of the Corporation expressed by resolution passed by the votes cast by a majority of the directors of the Corporation at a meeting of the board of directors or signed by all of the directors of the Corporation; OR
2. The shareholders of the Corporation expressed by resolution passed by the votes cast by a majority of the shareholders who voted in respect of the resolution or signed by all shareholders entitled to vote on that resolution.
So the articles of incorporation are basically saying that a resolution is required by those in charge of the corporation to permit the share transfer. Otherwise, someone could yell ‘foul’ and put the whole share transfer up into the air (leading to court case). This shouldn’t be a problem if there’s only 1 shareholder, 1 director, and 1 officer (all happening to be the same person). But disputes may arise where a group of shareholders try to transfer their shares without the directors’ or other shareholders’ approval.
So, make sure you read the Articles of Incorporation to see if there are any restrictions on transferring the shares. The key thing to keep in mind is that if, for some reason, it’s too difficult for a shareholder to obtain the approval necessary to have their shares transferred, then they might make a case to amend the Articles of Incorporation to remove those restrictions. Attempting to amend the Articles is not easy: you need a resolution from two thirds of the shareholders entitled to vote and who cast their vote at a special meeting.
As an alternative to having restrictions on share transfers in the Articles of Incorporation, shareholders could simply place such restrictions in a Shareholders Agreement. Amendments could be made without the need to have the corporation file Articles of Amendment.
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