In the statutes of limited liability companies, it is possible to insert approval clauses to condition the sale of shares to new shareholders. Let’s see their meaning and some examples.
What are the approval clauses?
The approval clauses serve to limit the transfer of the shares of an SRL to external parties who are not welcome or who do not have certain requirements. The clause applies only to transfers to third parties while it does not apply to transfers between shareholders.
In practice, anyone who wants to sell their share to a third party must first obtain the approval of the other shareholders or directors. The clause in the articles of association defines whether the decision on approval will be taken by the directors (sole director or board of directors) or, alternatively, by the other shareholders and the necessary percentages (eg majority or unanimity).
For example, in a company with four partners, one of them wants to sell their stake to an outside buyer. However, the approval clause in the bylaws provides that before proceeding, he must obtain the approval of the purchaser from the directors. If the buyer is not approved, the member will not be able to sell his share.
Who does the approval clause apply to?
The approval clauses apply to transfers to persons who are not shareholders of the company. However, the clause can be customized by the shareholders according to their needs and not apply to certain categories of external parties. The most common examples are assignments made to a spouse or close relatives.
For example, if a partner intends to sell his stake to his wife, he should first get approval. If there is an exception for the spouse, the shareholder can sell the share directly without first having to obtain approval.
The approval clause can be used in all SRLs but not in the simplified SRL (or SRLS). This type of company does not allow, in fact, to customize the statute.
Meaning of mere and not mere liking
There are two types of approval clauses: mere approval and not mere approval. These clauses are distinguished by the different ways in which they limit the entry of new members.
Merely approval clause
The mere approval clause conditions the entry of new shareholders to a discretionary choice of the directors or shareholders. The decision is not bound to the particular requirements of the new member but is free. In case of refusal, the reasons for the refusal must be communicated to the shareholder who wanted to sell his share.
For example, if a shareholder of an SRL intends to sell his share to a third party, he will have to ask for the approval of the directors who will be able to decide whether to authorize the sale at their sole discretion.
Non-mere approval clause
The non-mere approval clause is the one that establishes the criteria or characteristics that the third party purchaser must have in order to be part of the company. Generally, these clauses are used to allow entry into the company only to qualified individuals. With this type of clause, the refusal to sell to a new shareholder does not need to be motivated.
For example, a shareholder of Alfa SRL will be able to sell his share only if the new shareholder has specific IT technical skills or if he is not a shareholder of a competing company.
How do the approval clauses work?
Anyone wishing to sell their share must first notify the other shareholders or directors. The modalities are established in the statute of the company which also regulates who decides on the approval and modalities of the decision.
Typically, the member who wants to sell must communicate to his intention to administrators. The communication must indicate:
- the share being sold
- the agreed price
- the details of the buyer
- the conditions for the sale
Once the decision on the approval has been made, this must be transmitted by the directors to the selling shareholder within a certain period established by the articles of association.
When the approval clause is inserted in the statute, the right of withdrawal (right to leave the company) must be regulated in favor of the shareholder who intended to sell his share.
When is liking useful?
The approval clause is used to prevent the entry of third parties into the company. The SRL, in fact, has a personal nature, and the modification of one or more shareholders with people who are not known or who do not possess certain requirements can have significant consequences.
Furthermore, the shareholder who is denied approval may still leave the company by exercising the right of withdrawal. In this case, however, the exit procedure is not easy. It will in fact be necessary to give a cash value to the share of the outgoing shareholder and disagreements between shareholders could arise at this stage.
To avoid this type of problem and facilitate the exit of members, it is recommended to insert weaker limitations. A possible solution is the pre-emption clause which allows the sale of the share to external parties only if the other shareholders do not intend to purchase the share of the outgoing shareholder.
Establish an SRL with an approval clause
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