A shareholder cannot typically force another shareholder to sell their shares unless there is a contractual obligation entitling them to do so. For example, if there is a provision enabling such a sale in the company’s Articles of Association, Shareholder Agreement or another valid contract.
Usually, the more effective way of purchasing a shareholder’s shares is to negotiate with the shareholder whose shares you would like to purchase. A share sale can be done via a share transfer agreement, where the shareholders buy the other shareholder’s shares, or it can be done through a company buy-back, where the shares will go back to the company.
Under section-38 of the Companies Act of 1994
One can transfer the shares or sell the shares at his/her own will.
- Firstly, an application has to be made by the transferer or the transferee.
- Secondly, it has to be duly stamped and executed by the transferer and delivered to the transferee along with the company.
- Thirdly, the company will send notice of refusal to both within one month of receiving the transfer documents of the shares.
But the shareholders who want the sale to go ahead have a majority shareholding, they could consider passing a special resolution in the annual general meeting to alter the company’s Articles of Association to include provisions to force a sale of the shares. This sale will be considered a sale at fair value and often there is a calculation within the Articles of Association to determine how the valuation should be calculated.
Another way to do this is through shareholders’ agreements. Though this type of agreement is rare in public companies they are important and a prerequisite in privately owned companies. That’s because minority shareholders can create substantial problems in a small-company context, especially when they seek to sell or transfer their shares to third-party buyers.
Forcing a Shareholder to Sell His Shares
Mainly, to protect against probable chaotic situations, a shareholders’ agreement can specify certain conditions under which one shareholder must sell shares to fellow shareholders or back to the company. For instance, some companies give the company the right of first refusal to buy back shares that pass to an heir after the death of a shareholder. Other agreements can force a sale based on other conditions. The agreement will often set the amount of compensation that the selling shareholders will receive for their shares. In some cases, the payment the selling shareholders will get won’t necessarily reflect the current fair value of the shares, but it will reflect a formula that all shareholders will have agreed upon when they initially signed the agreement.
But these agreements can also harm the interest of the minority shareholders. The act, thus, gives a solution to the minority shareholders if they are forced and unlawfully forced to sell their shares or to tackle the unseen damages which will be done towards their interests. As a result, a minority shareholder has the right to apply to the court claiming ‘unfair prejudice’. An unfair prejudice petition from a minority shareholder is usually brought against the other shareholders personally and they will usually have to use their own funds to defend such an action.
But the amendments to the Articles of Association have been found by a court to have been made in good faith and in the interests of the company, it has followed that the court has not found that the amendments have been unfairly prejudicial to a minority shareholder. However, if the motive for changing the Articles is improper and not in the best interests of the company, then it is likely the minority shareholder will be able to challenge the change. Even if the amendment adversely affects or is intended to affect a minority shareholder, it may still be valid, providing that the amendment is made in good faith and in the interests of the company.
Conclusion:
The laws are implemented to protect the rights of both parties but it varies from one situation to another so that it can ensure the best interest of the most affected ones. Company matters are mainly regulated by the Bangladesh Companies Act 1994, the Bangladesh Securities and Exchange Ordinance 1969 (together with the Bangladesh Securities and Exchange Commission Act 1993 and the rules made thereunder) and the rules of the Dhaka Stock Exchange (DSE) and the Chittagong Stock Exchange (CSE); and the Company’s Articles of Association.
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