Does non-compliance with the procedure for notifying the intention to sell a share in LLC always violate the right of other participants to purchase it?

// sbh-partners.com.ua

Most often in business partners decide to part or one of the partners wants to continue doing business on their own. In this case, the question arises - what to do with the share in the business owned by the retiring participant, which is usually personified in the share in the authorized capital of the company? One possible solution is to sell a stake. In this case, other members of the company have a preemptive right to purchase such a share, and the participant selling the share is obliged to notify other participants about his intention to sell their share.

What are the consequences of non-notification and whether non-compliance with the notification procedure will always violate the preemptive right of other participants?

Legislation

This issue is regulated by the provisions of Art. 20 of the Law of Ukraine of 06.02.2018 "On Limited and Additional Liability Companies" (hereinafter "the Law on Companies").

Part 3 of the above article stipulates that a company participant who intends to sell his share to a third party is obliged to notify other participants and, moreover, to inform them about the price and size of the share to be alienated. From the moment of sending such messages (which are better to send with confirmation of sending, for example, a valuable letter describing the enclosures of Ukrposhta, etc.), other participants must within 30 days of receiving the message to declare their desire to enforce the preemptive right. If within 30 days no one has expressed a desire to use it - on the 31st day it is considered that the other participants have given their consent to the alienation of shares to a third party on the terms they have been notified.

If another participant has exercised the right to purchase a share, he together with the seller and / or other participants is obliged to enter into a contract of sale within 1 month. In case of evasion of the seller from fulfillment of such obligation the potential buyer has the right to address in court with the claim for recognition of the contract of purchase and sale of the share concluded on the conditions which were contained in the message.

The charter may establish another rule according to which the participants of the LLC do not have a preemptive right to purchase such a share.

And by virtue of Art. 53 of the Companies Act, according to which the alienation of a participant by a company to third parties is allowed, unless otherwise provided by the statute, the statute may provide that the alienation of shares to third parties is carried out in accordance with Part 2 of Art. 21 of the Law on Companies, namely - only with the consent of other members of the company.

In accordance with the established business practice, the participants of the company, who do not claim to use the preemptive right to purchase a share, submit written refusals directly to the general meeting of participants of the company.

Thus, notifications of intent to sell shares should be sent to other participants in several ways, combining formalized (Ukrposhta) and informal methods (direction of e-mails and oral notification of other participants).

Position of the Supreme Court of Ukraine

31.03.2021 The Commercial Court of Cassation as a part of the Supreme Court of Ukraine in its decision on the case № 928/875/17 clarified that non-compliance with the procedure for notification of the intention to sell a share does not always violate the right to purchase it.

According to the lawsuit, the plaintiff appealed to the court to recognize his preemptive right to acquire a stake in LLC.

In this case, the plaintiff owned 85% of the authorized capital, and the defendant - 15%. The defendant repeatedly informed the plaintiff orally of his intention to sell his share to a third party. The defendant did not send written messages to the plaintiff.

However, on November 8, 2018, an agreement on the sale of a 15% share in the authorized capital was concluded between the defendant and a third party. The act of acceptance and transfer of shares was notarized, there was a corresponding general meeting of participants.

On the same day, the defendant, who sold the share, filed a notarized statement of withdrawal from the participants in connection with the sale of the share, and the person who purchased the share - a notarized statement of its inclusion in the company based on the act of transfer shares.

At the general meeting of participants, it was unanimously decided to exclude the defendant from the membership of the company, and the buyer - to include in the membership. In addition, a new version of the charter was approved, which fixes this change in the composition of participants.

The Commercial Court of the Kherson Region and the South-Western Commercial Court of Appeal dismissed the claim based on the following facts:

1. The company's charter did not establish a specific procedure for exercising the preemptive right.

2. The plaintiff personally participated in the general meeting of participants, was personally aware of the withdrawal of the defendant from the company and the sale of shares to them.

3. The plaintiff, owning 85% of the authorized capital, could influence the decisions made at the general meeting by the participant, but did not do so.

4. The plaintiff perfectly understood the consequences of signing between the previous owner of the share and the buyer of the contract of sale.

The Commercial Court of Cassation agreed with the acts of the lower courts and noted the following:

"... if the courts with the help of proper and admissible evidence found that the participant himself refused to exercise his preemptive right, including by voting at the meeting for the inclusion of a new member in the company and making appropriate changes to the statute, such refusal indicates awareness of the participant with the intention to sell the share and lack of intention to buy it. Accordingly, the participant's preemptive right to purchase a share is not violated. »

"According to established business practice, company members often sign a written statement of waiver of the preemptive right to purchase shares or make a decision at the general meeting, make a statement that is entered in the minutes of the general meeting without a separate decision on this issue. Such a refusal indicates that the participant does not wish to exercise his pre-emptive right. The corresponding expression of will can be made also after the conclusion of the contract of purchase and sale of a share, ie certain approval by the participant of the agreement on alienation of a share to the third party already after its conclusion. »

"In the case under consideration, the plaintiff does not deny the fact of his participation in the general meeting, the signing of the minutes of the general meeting and the new version of the statute. His signatures on these documents are notarized.»

"Since on November 8, 2018 the plaintiff objected to the alienation of the share, and also participated in the exclusion of the defendant from the Company and in the inclusion of [buyer] in the Company, the Supreme Court agrees with the defendants that the plaintiff agreed to purchase shares and thus refused to exercise his preemptive right.»

In the end, the cassation appeal was dismissed and the acts of the lower courts were upheld.

Conclusions

Thus, based on the updated practice of the Supreme Court of Ukraine, the following conclusions can be drawn:

1. The company's charter may establish a certain procedure for exercising the preemptive right.

2. The fact of notification of other participants may follow from their participation in the meeting of participants of the company, which recorded a change in the composition of participants, and be confirmed by various evidence.

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