Texas Restriction On The Transfer of Shares
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FAQ
Types Of Restrictions On The Transfer Of Shares In A Private Company. Restrictions on the shareholder's right to transfer their shares has two common forms: Right of Pre-emption in favor of the other members. Powers of the Board of Directors to refuse to register transfer of shares.
Stock transfer restrictions are permissible. However, restrictions cannot be absolute. Whether or not a stock transfer restriction is reasonable, and therefore permissible, is often a question for the courts.
Share Transfer Restrictions under the Companies Act, 1956 Power of Directors to refuse transfer of shares. In Bajaj Auto Limited v.Pre-emptive rights. A right of pre-emption is incorporated in the articles of a Private Company to restrict the members' right to transfer shares to non members.
The restriction basically embodies the principle that if a shareholder of a private company wishes to sell some shares, the existing shareholders have a right to be offered these shares first and on their refusal or failure to act within the given time, the shares can be sold to a third party.
The rules and restrictions on the transfer of shares of a corporation depend on whether it is a private or a public corporation. A private corporation has 50 shareholders or less, restricts the right to transfer shares, and prohibits the sale of shares to the public.
Shareholders in a private company limited by shares will often wish to control who becomes a fellow shareholder in the company, and therefore it is common for the company's articles of association and/or shareholders' agreement to contain provisions restricting the transfer of shares.
Transferability may be restricted by provisions in the articles of association regarding only the pre-emption clause and consent clause. Transferability may be restricted by provisions in a shareholders' agreement.
Transfer restrictions are terms that prevent the transfer of securities. They can be required by any of the following: Statute (such as the hold period restrictions required for some securities acquired pursuant to a private placement exemption).