Understanding the process

Whether a shareholder is selling their stake to a third party, transferring it to another existing shareholder, or exiting the business altogether, the process generally begins with a review of what the company's memorandum of association and any shareholders' agreement provide. These documents often set out whether other shareholders must be offered the shares first, whether the transfer needs shareholder approval, and what documentation is required.

Once the parties agree on the principle of a transfer or exit, the commercial terms — including valuation, payment and timing — are typically negotiated and then reflected in a written agreement.

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Valuation and terms

  • Valuation is generally reached by agreement between the parties, which may be informed by the company's financial records, independent input, or a method set out in the shareholders' agreement.
  • Payment terms — whether a lump sum, instalments or another structure — are a matter for negotiation.
  • It is common to address outstanding matters such as loans between the shareholder and the company, guarantees, or ongoing responsibilities as part of the exit terms.
  • A written agreement recording the terms of the transfer or exit is generally advisable, regardless of how straightforward the discussion has been.

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Updating the company's records

Once the commercial terms of a transfer or exit are agreed, the change generally needs to be reflected in the company's official documents, subject to the relevant authority's requirements. This typically involves amending the memorandum of association and updating the trade licence and related registrations to show the new ownership.

  1. 1Confirm what the memorandum of association and any shareholders' agreement require for a transfer.
  2. 2Agree the commercial terms, including valuation and payment, in writing.
  3. 3Address any outstanding financial matters between the exiting shareholder and the company.
  4. 4Prepare the documents needed to amend the company's records, subject to the relevant authority's requirements.
  5. 5Confirm the transfer has been reflected in the trade licence and company records before treating the matter as complete.