The procedure for exercising the preemptive right to purchase a share in an LLC

The pre-emptive right to purchase a share in a limited liability company is a key legal instrument that allows the current shareholders to maintain control over the company, preventing unwanted entry of third parties into the co-ownership. Its implementation has a clear procedure that must be followed to avoid legal risks and possible corporate disputes.

What is a preemptive right?

Pre-emptive rights are legally guaranteed opportunities for LLC shareholders to be redeemed first on the same terms and conditions if one of them intends to sell his or her share to a third party. This rule helps to avoid situations where unknown or unwanted persons gain control over the company, influencing its management or access to confidential information.

The right is enshrined in Article 20 of the Law of Ukraine "On Limited Liability Companies and Additional Liability Companies" and Article 362 of the Civil Code of Ukraine.

When a preemptive right arises

The right arises only in cases where the participant intends to transfer a share to a third party. If the share is transferred to another LLC member, or alienated by inheritance, gift or withdrawal in connection with withdrawal from the company, this right does not apply. It also does not apply in cases where the share is transferred by inheritance or as a result of the division of spousal property.

For the pre-emptive right to arise, the following is required preliminary written offer a purchase offer that must be sent to the other shareholders of the company, indicating the value, amount of the share, terms of sale, and potential buyer.

General procedure for exercising the preemptive right

The procedure for exercising a preemptive right consists of several successive stages. Failure to comply with at least one of them may result in the share purchase agreement being declared invalid.

1. Messages from other participants

A shareholder wishing to sell its share must notify in writing company and all other shareholders of its intention. The notice must clearly state:

• the size of the share to be alienated;

• sale price;

• the conditions under which the alienation is planned;

• the period during which other participants may exercise their right.

The law sets a standard period of 30 calendar days. Participants wishing to exercise the right to purchase must notify the company in writing within this period.

2. Waiting for a response

After receiving the notice, the other participants must decide whether they want to exercise the preemptive right. If no response is received within the prescribed period, the participants are deemed to have waived their right.

3. Implementation of the preemptive right

If one or more participants agree to purchase a share, a sale and purchase agreement must be concluded. If there are several bidders, the share is distributed among them in proportion to their shares in the authorized capitalunless otherwise provided by the charter.

4. Agreement with a third party

If none of the shareholders exercises their right within the prescribed period, the shareholder has the right to sell the share to a third party on terms that are no worse thanthan were offered to other participants. If the agreement is concluded on terms that are more favorable to a third party, this may be grounds for challenging the agreement.

5. Notarization

A share purchase agreement in an LLC is subject to notarization. After its conclusion, changes are made to the Unified State Register of Legal Entities.

Peculiarities of the company's charter

The law allows regulating the mechanism for exercising the preemptive right in the charter of the LLC. In particular, participants can foresee:

• an extended period for exercising the preemptive right (for example, 60 days instead of 30);

• mandatory approval of the sale by the general meeting;

• restrictions on the range of persons who are allowed to sell the share;

• the procedure for determining the value of the share (for example, by an independent expert).

It is important that the provisions of the charter must not contradict the law, but may detail the procedure.

Liability for violation of preemptive rights

If a share was sold to a third party without notifying the other shareholders or in violation of the conditions for exercising the preemptive right, each of the co-owners has the right:

• apply to the court to declare the agreement invalid;

• demand the transfer of the buyer's rights;

• file a claim for damages.

The claim may be filed within one year from the date when the participant learned or should have learned of the violation.

In court practice, there are situations where the lack of evidence of proper notification leads to the invalidation of the contract, even if the buyer was in good faith. Therefore, it is very important to properly execute documents, including the date, signatures, and method of delivery of notifications.

Practical recommendations

1. Always execute a notice of share sale in writing with proof of delivery.

2. Avoid agreeing on agreements verbally, as this deprives you of legal guarantees.

3. Check the provisions of the charter in advance - they may contain additional requirements.

4. Do not try to circumvent the preemptive right - this is a risk of litigation.

5. If in doubt, consult a lawyer specializing in corporate law.

When to contact a lawyer

Exercising a preemptive right is not just a formality, but a responsible legal procedure, the correctness of which affects the stability of the business. You should contact a lawyer if:

• the participants did not reach an agreement on the sale;

• there is a dispute about the terms or price;

• other participants refuse to recognize the agreement;

• the need for judicial protection arises.

A lawyer will help you to properly execute all documents, ensure compliance with deadlines and, if necessary, protect your rights in court.

Conclusions.

The preemptive right to purchase a share in an LLC is an important tool that allows you to maintain stability in the company's shareholding. Its exercise requires compliance with the procedure established by law: written notice, compliance with deadlines, and proper execution of the agreement. Violation of the procedure may lead to legal consequences, including the invalidation of the transaction. To avoid risks, you should engage a lawyer with experience in corporate law.