Permitted Transfer Shareholders Agreement


The pre-purchase clauses in the transfer of shares, provided they are included in the company`s by-law, require a shareholder to transfer his shares, inform other shareholders of all the details of the offer of the potential purchaser and put his shares on sale to other shareholders who have priority when buying the shares offered. If existing shareholders refuse to acquire the shares, the shares in question may be offered to potential third-party purchasers. Todd and Antonio argued that the option was not valid, since the shareholder contract only gives Donald a lifetime transfer of his shares to Gary and he was unable to do so after his death. They also argued that the only permissive use of a trust under the shareholder contract would be to transfer shares in Donald`s descendants, which was not done since Donald has no children. The Court rejected these arguments, referring again to the broad definition of “transfer” in the shareholders` pact, pointing out that the agreement explicitly allowed a transfer between brothers after the death of a brother. The court therefore found that the terms of the shareholders` agreement “allowed Donald to transfer his shares to Gary after Donald`s death (by granting the option).” As a result of this appeal, Gary retained ownership of two-thirds of the business, with Todd and Antonio both owning one-third of the ownership shares. In this case, the Court applied the clear language of the shareholders` pact to find that the disputed transfer was admissible. The Court of Justice was able to do so on the basis of the broad definition of “transfer” in the agreement. Such a broad definition was probably framed thoughtfully to include as many stock transfer opportunities as possible at a later stage.

Nevertheless, this case reminds us that definitions are important when the parties enter into shareholder agreements. Such definitions will guide the review of such agreements by a Court of Justice, perhaps many years later, and at a time when some or all of the original parties are no longer available to certify which transfers should be allowed. In this SHA clause, the provisions often exceed protection in the legal or standard statutes and provide for provisions of the majority for the approval of certain acts. A super-majority requires a large majority of shareholders (usually 67% or more) to approve significant changes. Standard statutes often require only a simple majority (50%) for many subjects.