Selling LLC share by minoritarian: what are the crucial aspects?
17 March, 2023
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Interlegal regular client, wishing to sell its share in Limited Liability Company (as a natural person) filed a request.
The Client, as a minoritarian in the company, owned small share of authorized capital and was not engaged in the company management. Interlegal task was to finalize negotiations with the Buyer and to provide legal support in closing the deal.
In the framework of this project, let us highlight several aspects for selling share in LLC, in particular, in case of minoritarian share.
First, price and settlement procedure should be agreed. The agreement shall contain clear provisions, without any ambiguities or discrepancies.
We recommend to fix the moment of share transfer to the buyer as per Acceptance Certificate following payment by the Seller (e.g. after cost enrollment to the Seller’s bank account). Acceptance Certificate – this is the final document for closing the deal; given such certificate the Buyer may independently replace the company member in the Unified State Register.
Tax burden shall be imposed on the Seller who shall independently calculate tax amount before payment and submit tax declaration: in such case, the notary certifying Acceptance Certificate shall not act as tax agent.
In order to present balance of the parties’ interests, thresholds should be fixed between the following essential stages of the deal:
– entry into Sale & Purchase Agreement by the parties;
– complete settlement between the parties;
– share transfer to the Buyer as per Acceptance Certificate;
– state registration of member replacement in the Unified State Register.
As per replacement registration, the Agreement should prescribe the Buyer’s obligation to delete all data about the Seller (from the Articles, ownership structure etc.), since the director is solely authorized to do so.
Share Sale & Purchase Agreement usually incorporates the Seller’s guarantees on share and on the company in whole.
The Parties often cannot reach a compromise upon such guarantees. The Buyer desires to secure its interests and risks as much as possible, without pig in a poke. However, the Agreement may prescribe guarantees the Seller is unable to provide.
Minoritarian member usually cannot guarantee the following:
– no decisions made by LLC management bodies (upon LLC activities, obligations against third parties etc.);
– no agreements entered into by LLC (on property, proprietary rights etc.).
Such guarantees are reasonable and understandable in case of share purchase from LLC sole member. But when the Seller is one of LLC members such guarantees cannot be provided a priori, because the Seller’s awareness may depend on some factors, namely: its member’s share amount, person acting as the director; corporate conflict between members etc.
In the framework of such deal, the Seller took into account all the arguments, jointly with facilitating defense of the Client’s interests.
Interlegal lawyer Dmytro Bondar and associate attorney Marta Sverdlykivska, managed by partner Irina Voyevodina, led the case.
Interlegal Corporate & Tax dept provide assistance upon sale & purchase agreements on participatory interests and upon settlement of any other corporate issues.
