5.11 TRANSFERABILITY AND PRE-EMPTION RIGHTS
It should be remembered that the pre-emptive rights in the Companies Act 2008 in itself only deals with the issue or allotment of shares, it does not deal with the transferability of shares i.e. when one shareholder transfers shares to another shareholder or to an outsider. This is something that needs to be addressed by boards. I have detailed the necessary clauses below which are unfortunately quite lengthy. If anyone has the desire to make changes, please do so.
S39(2) deals with pre-emption rights but only for the subscription or allotment of shares and basically says that if a private company proposes to issue any of the shares of that private company, each shareholder has a right to take them up in the ratio of shares they hold, provided they take them up in a reasonable time period. This basically means that the voting rights before the subscription of the new shares must be the same as the voting rights after the subscription of the new shares, unless a shareholder declines to take up their share of what is offered and then other existing shareholders may take up those shares.
This is all very well, but what happens where there are a number of shareholders in a private company and things turn a bit sour and a particular shareholder who may hold say 25 per cent or 30 per cent wishes to exit and wants to sell their shares. Owing to the fact that it is a private company this becomes a very difficult situation and the way the MOI is configured now (when first implemented) and the way the Act is configured it is probably possible for the shareholder to go and offer his shares to any outsider or third party who may in fact be a competitor and it may in fact not be in the best interest of the company concerned, unless there is some kind of restriction on the transferability clause.
The latest short form now has a clause 2.1 (2) (e) which says that a transfer needs to be approved by the company. The original one MOI did not.
If one looks at the standard Articles of Incorporation used in the old act, table B together with various amendments that lawyers made in regard to the transferability of the shares where they put in a number of articles preventing a shareholder from basically selling the shares to a third party where the Directors do not approve. Detailed below is my version of what should go into the MOI or shareholders agreement.