Owning shares in a company represents an individual’s share of ownership in the company. Shares in a company or corporation can be transferred, assigned or sold between seller and buyer. Before the process of transferring can begin, it is important to determine the type of business entity shares will be transferred through. There are several types of business entities: corporations, limited liability companies and even partnerships. Each business entity differs in the type and number of shareholders in which a company or corporation is composed.
Transfer of shares varies with the type of business entity because each business entity would have their own operating agreement or shareholder agreement guiding the transfer of shares. Ideally, each corporation should have its own type of agreement. An operating agreement is a contract among the members or shareholders of a corporation outlining how to run the corporation whereas a shareholder agreement imposes restrictions on the sale of stock. If there is no shareholder agreement, a corporation must assign a realistic value to its shares. It is important to note that these agreements must conform to state corporation laws. It is important to preserve the tax status to be aware of the transferee’s (new shareholder or LLC member) immigration and/or incorporation status.
Once you have determined whether there are shareholder agreements, a purchase agreement can be drafted for the transfer or sale of shares. A purchase agreement outlines the terms and conditions of the transfer or sale of the share. The last step is to record such share transfers in the record books by updating the title on the share certificates and listing the changes in stock ownership. Boyer Law Firm is equipped to handle these type of situations whether it be drafting a share transfer agreement, or to preserve your tax status. Please contact Boyer Law Firm for more information.