The Limited Liability Companies Act is based on the free exchange of shares. The transferability of the shares may be limited only by way of a voluntary redemption or consent clause included in the articles of association. Redemption clauses are typical in family businesses and housing companies.
With the redemption clause included in the articles of association, the shareholders can control the transfer of shares, as well as the persons seeking to become shareholders. A redemption clause renders it possible to prevent unwanted persons to become shareholders in the company and to grant the company’s shareholders priority to increase their holding in case any of the shareholders wish to transfer their shares.
On the other hand, the redemption clause does not always work as originally planned. For example in a redemption situation the parties entitled to redemption might not wish to or do not have the economic prerequisites to redeem the shares. The possibility of redemption often diminishes the willingness of the outside purchasers to purchase shares and is thus detrimental to those shareholders, who are about to transfer their shares. For the aforementioned reasons a redemption clause should only be used when there is a clear objective, which is promoted by the possibility of redemption. Correspondingly, the redemption clause should be removed from the articles of association when it is no longer needed.
The redemption clause in the articles of association may provide that the shareholder, the company or somebody else has a right to redeem a share which is transferring to a new owner from somebody else than the company itself. The redemption clause must specify who has the right of redemption and how the mutual priority of several redeemers is determined. The redemption clause included in the articles of association may concern all the shares or only a part thereof. A note of the redemption clause must be made on the share certificates concerned.
The redemption clause may concern all kinds of situations of transfers of title, such as a purchase, exchange, gift, inheritance, will and a marital right to property. Some transfer situations may however be left outside the scope of application of the redemption clause. This is often done in case of transfers pursuant to family relations and inheritance.
The articles of association must include provisions covering the grounds for and the conditions of the redemption clause. It is e.g. possible to determine the redemption price or the basis for the calculation thereof. In addition, time limits for presenting the redemption claim to the company and for paying the redemption price may be stated in the articles of association. They cannot, however, exceed the default time limits mentioned in the paragraphs 4, 5 and 6.
The Limited Liability Companies Act includes the following presumptions on the contents of the redemption clause. In case the company has included a redemption clause in its articles of association, these presumptions are followed to the extent in which they have not been deviated from in the articles of association notwithstanding the time limits mentioned in paragraphs 4, 5 and 6 that cannot be extended by the articles of association:
the redemption right applies to all kinds of acquisitions;
all shares covered by the same acquisition shall be redeemed at the same time;
the redemption price is the current price of the share, which in case of an acquisition against payment is the agreed price in the absence of other evidence;
the board of directors shall, within one month from when it has received information on the transfer of a share, in writing, or in the same manner as has been prescribed for the notice to the general meeting of shareholders, notify the transfer of a share to the persons who are entitled to redeem the share;
the redemption claim shall be presented to the company within two months from when the board of directors has received information on the transfer of a share; and
the redemption price shall be paid within one month from the expiry of the time period for presenting the redemption claim or, in case the redemption price has not been determined as a fixed amount, from the confirmation of the redemption price.
