Buying and selling UAB shares: special rules
When a private limited company (UAB) has several shareholders and one of them wants to sell shares, the other shareholders have a pre-emption right: a right to buy those shares from the seller first. The aim is to keep the company’s capital in fewer hands: with fewer shareholders, the company is easier and more efficient to manage, and disagreements between shareholders are less likely. A shareholder who wants to sell must therefore notify the company in writing of the intended sale, stating the number of shares and the amount for which they are to be sold, and the company’s CEO informs the other shareholders within 5 days (Law on Companies of the Republic of Lithuania (ABĮ), Article 47(1) and (3)). If shares are sold in breach of another shareholder’s pre-emption right, that shareholder may ask the court to declare the share sale agreement invalid. Still, not every breach of the procedure is a ground to challenge the sale: if the CEO informed the shareholder about the shares for sale and the shareholder did not say within the set period that they wished to buy, breaches of the duties between the seller and the company do not infringe that shareholder’s rights (Supreme Court of Lithuania, ruling of 27 February 2015 in civil case No. 3K-3-98-248/2015). It is therefore worth following this procedure exactly, or a court dispute is likely. The procedure does not have to be followed where the company has two shareholders and one of them sells all or some of their shares to the other (ABĮ Article 47(8)). In addition, the articles of association may provide that the pre-emption right does not apply or that shares are sold under a different procedure (ABĮ Article 47(9)).
Article 47 of the Law on Companies governs the sale of shares. Until 30 November 2022 it stated that the article did not apply where shares were transferred other than by sale or in enforcing a court judgment (former ABĮ Article 47(11)). That part was repealed, and the same law also changed the title of the article: it is now called “Uždarosios akcinės bendrovės akcijų pardavimo ypatumai” (special rules on the sale of shares of a private limited company), and all its parts deal only with the sale of shares. The law ties the pre-emption right to shares being sold (ABĮ Article 47(2)), so under the law this procedure does not apply to a gift of shares: a gift is a gratuitous transaction that transfers the shares only to the specific recipient (Supreme Court of Lithuania, ruling of 12 October 2009 in civil case No. 3K-3-435/2009). For an exchange of shares, we recommend following the same procedure as for a sale: offer the shares to the other shareholders first or obtain their written waivers of the pre-emption right. This is a precaution, not a direct statutory duty. ABĮ Article 47 speaks only of a sale, and in the same ruling the Supreme Court of Lithuania recognised the pre-emption right only for a sale of shares, not for other ways of transferring them. However, the rules of the Civil Code of the Republic of Lithuania (CK) on sale and purchase agreements apply to exchange agreements where this does not contradict the rules on exchange and the nature of an exchange (CK Article 6.432(2)), and a court may treat an exchange with a large cash top-up as a disguised sale. In a shareholders’ agreement the shareholders may also agree rules between themselves for other ways of transferring shares, so it is worth checking that agreement before giving shares as a gift. If a gift or exchange agreement in fact conceals a sale, the rules of the transaction the parties actually intended apply, and other shareholders whose rights are infringed by such a transaction may rely on this to defend their rights (CK Article 1.87(1) and (2)).
Note also that the Civil Code requires a UAB share sale agreement to be made in notarial form where 25 per cent or more of the company’s shares are sold or the shares are sold for more than fourteen thousand five hundred euros. Notarial form is not required where the shareholders’ personal securities accounts have been handed over to be managed by a legal person entitled to open and manage personal accounts for financial instruments, or where shares owned by the state or a municipality are sold in a privatisation transaction (CK Article 1.74(1), point 3).
Related articles
- Shares must first be offered to the other shareholders: how to keep it from taking a month
- When a UAB share sale agreement must be notarised, and when the notary asks for it anyway
- Selling UAB shares to a foreign buyer: signatures and apostille
- UAB articles of association and shareholders’ agreement: what differs
- Converting a loan into UAB shares: set-off, valuation, pre-emption
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