During our practice we have served versatile consulting to foundations, public funds, corporations and individual investors.

Redemption of shares in a limited liability company

 Shares in a limited liability company may be redeemed. The redemption of shares is regulated by the provisions of Art. 199 of the Commercial Companies Code. In practice, the redemption of shares is accompanied by a reduction in the company's share capital. The redemption takes place upon registration of the share capital reduction in the registry court.

 There are several types of redemption: voluntary, compulsory, and automatic. Each of them has a different distribution of tax obligations among all shareholders in the transaction.

The voluntary redemption procedure is that the shareholder of the company gives consent to the purchase of which is carried out through the acquisition of a certain number of shares for a payment or free (with the consent of the shareholder). The agreement for the purchase of owns shares by a company for redemption is practically the same as agreement of sale. The purpose of the purchase must be clearly defined and unchanged.

Compulsory redemption of shares does not require the consent of the shareholder. To achieve this, in the agreement of limited liability company the possibility of compulsory redemption of shares must be provided for.

The last method - automatic redemption, can be used when the agreement provides for the redemption of shares in the event of a specific circumstance, without decision at a shareholders' meeting. Examples of events that justify automatic share redemption:

  • death of a shareholder,
  • conviction of a shareholder,
  • loss of a certain professional qualification by a shareholder.

Each of these methods is different from each other. The redemption of shares is possible only in relation to a company that is registered in the court register. An additional general condition is the need to include an appropriate redemption clause in the company's agreement. If company agreement did not provide the possibility of redemption, it is always possible to change (decision to amend the articles of association must be taken by a two-thirds majority vote at the shareholders' meeting).

To redemption shares, it is also necessary to make a decision by the general meeting of founders. Such a decision must indicate the legal basis for the redemption and the amount of payment due for the redeemed shares, or without payment (with the consent of the shareholder). In the case of a compulsory redemption, the decision must additionally contain a justification, which, in the event of a possible litigation over the cancellation of the decision, will demonstrate the reason for the decision. In accordance with the automatic redemption procedure, the decision of the meeting of shareholders can be replaced by the decision of the general meeting of founders.

The procedure for redemption of shares ends when the management board submit to the registration court a new list of shareholder in the company, signed by all the management board, indicating the number and value of the shares owned by each shareholder.