Module 5 · Chapter 14

Transfers, Tag and Drag

A venture company decides who may own its shares. This chapter follows the rules a share must pass before it can move, and the drag-along clause that failed when the lead investor was the buyer.

≈ 13 min read 8-question test

In this chapter

  • How the articles stop shares moving, and the routes they leave open
  • How tag-along protects small holders and drag-along binds them
  • Why the drag failed when the lead investor was the buyer, and how it was fixed

14.1Transfer rules in one paragraph

An investor in a young company chooses its fellow shareholders when it pays, and it does not want a stranger to join them later. So article 11.1 bans every transfer except those the next five articles allow, and tells the directors to refuse to register any other. That refusal does the work, because the register of members alone decides who holds a share. Article 11.2 closes a side door: a corporate shareholder that is itself sold is treated as offering its shares to the other holders.

Key point

Clause 19.1 explains why these rules sit in the articles: “only the Constitution binds the Company and every future holder of a Share”.

Also in this chapter

  1. Transfers that need no permission
  2. Offering shares to the other holders first
  3. The deed of adherence comes before the register
  4. Tag-along: the right to leave with the majority
  5. Drag-along: forcing the last holders to sell
  6. Why the drag failed when Meridian was the buyer
  7. Changing the article needed each class to agree
  8. Why the amendment had to come first
  9. Was it fair to the two who refused?
  10. Your job

Preview

The rest of this chapter opens with a free account. Every edition is free to read until 31 January. Open a free account by the end of that day and keep every edition published by then, for good. Open it from the edition home →