Shares must first be offered to the other shareholders — how to keep it from taking a month

If you are selling shares in a private limited liability company (UAB), you must first offer them to the company’s other shareholders. The full procedure set out in the law takes about a month. In practice it is often closed within a week — when all the other shareholders sign waivers of their pre-emption right straight away. This only works if every other shareholder can be reached and agrees to sign. If even one of them cannot be reached, all the statutory time limits run, and you need to plan for that time.

How long the statutory procedure takes

The time limits add up as follows.

Article 47(1) of the Law on Companies (ABĮ) — a shareholder who intends to sell all or some of their shares must notify the company itself in writing. The notice states the number of shares being transferred, by class, and the sale price.

Article 47(2) ABĮ — the pre-emption right to acquire all the shares being sold belongs to the persons who were shareholders of the company on the day the company received that notice. Shareholders who join later have no pre-emption right.

Article 47(3) ABĮ — no later than 5 days after receiving the notice, the head of the company must notify each shareholder against signature or send them a registered letter. That notice states the period within which the shareholder may declare a wish to buy. This period may not be shorter than 10 days or longer than 21 days from the date the notice is sent.

Add it up: 5 days plus up to 21 days. Plus the time a registered letter takes to arrive. A month builds up by itself, and it starts before the buyer has even seen a draft agreement.

What shortens the procedure in practice

In practice the procedure is most often shortened like this: all the other shareholders sign waivers of their pre-emption right straight away. With waivers from all of them, there is no need to wait out the time limits of Article 47(3) ABĮ, and the deal can be closed the same week. The law does not require a shareholders’ decision on the transfer of shares at all: Article 47 ABĮ provides for no such step, and Article 46(8) ABĮ prohibits the company from restricting shareholders’ right to transfer fully paid-up shares. The ABĮ does not regulate the waivers themselves separately — this is our practice: the shareholders confirm in writing that they will not exercise their pre-emption right.

This is the most common reason why a share deal in a small company closes within a week rather than a month. The law provides two further routes: where the company has two shareholders and one sells shares to the other (Article 47(8) ABĮ), and where the articles of association remove the pre-emption right (Article 47(9) ABĮ, see below).

But this approach has a limit, and it is a strict one. All the other shareholders must sign the waivers. One shareholder who cannot be reached is enough — away, not responding, deceased with the inheritance not yet settled, or simply unwilling to sign — and the whole scheme no longer works. The statutory time limits then apply in full, and the seller has to plan for this from the very start, not find out about it in the third week.

The practical conclusion for a seller: the first task is not the draft agreement. The first task is to find out how many other shareholders there are and whether each of them can realistically be reached within a few days. The answer to that question decides whether the deal closes in a week or in a month.

That is why the seller’s first call is not to the buyer but to the other shareholders. If even one of them cannot be reached, the buyer needs to be given the correct date from the outset. A seller who promised to close within a week and then asks for another month loses negotiating leverage on the price — not because they did anything wrong, but because they named the deadline before checking it.

When the waivers cannot be collected, the Article 47(3) ABĮ route applies: the head of the company sends the notices by registered letter and sets a period of 10–21 days. It then matters that the head of the company does this at once, not a week later — the five days the law gives them are a limit, not a schedule.

When no pre-emption right is needed at all

Article 47(9) ABĮ allows the articles of association of a private limited liability company to provide that the pre-emption right does not apply. The articles of association may also set a procedure for selling shares that differs from the one in the law.

So before anything else, the articles of association are read. If they already contain this provision, all the arithmetic described above is unnecessary. If they do not, amending the articles of association is a separate procedure with its own time limits, and it will most likely take longer than the pre-emption procedure itself, so it is not worth doing for the sake of a single deal.

The second thing that forces deals to be recalculated

Article 40(5) ABĮ provides that a share cannot be divided into parts. Only a whole number of shares can be transferred.

It sounds obvious, yet in practice it comes up again and again. In negotiations the parties agree on a percentage — 30 per cent, 12.5 per cent, a third. Then it turns out that no whole number of shares matches that percentage, because the company has, for example, a small number of shares with a high nominal value. The deal has to be recalculated, which means going back to the price and often back to negotiations.

There is a solution. The company can change the number of shares of the same class and the nominal value of a share without changing the amount of the share capital — this is a decision of the general meeting of shareholders, and afterwards there are more shares, each worth less. The agreed percentage then comes out as a whole number. The law does not require this; it is simply a way of removing an arithmetic obstacle when the parties have already agreed on a percentage and do not want to change it.

But it is a separate procedure with its own registration. If it is remembered in the week the deal is signed, the deal is postponed. If it is thought about at the start of negotiations — or if the parties negotiate a number of shares rather than a percentage from the outset — the issue does not arise.

How to start

Send us the company’s articles of association and tell us how many shareholders the company has. From that we will tell you whether the pre-emption right applies at all, how long closing the deal will realistically take, and which waivers need to be signed.

Tel. +370 5 212 1506, email info@linden.lt

More about this service: company law services.