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Transferring Shares in a Nevada Corporation

by | Jun 23, 2023 | Business Law, Contract Law


Shareholder transactions, usually the buying or selling of existing shares in a corporation, are the process of transferring shares from one person or entity to another. Typically, shares are transferred to bring a new core business partner on board. Alternatively, it can be for individual reasons, such as wanting to transfer shares to a family member either by sale or gift. Initial directors of private unlisted companies will commonly look to control the entry of new shareholders since this can have a huge impact on company management. For this reason, it is crucial to set restrictions on shareholders’ rights to transfer shares by way of incorporating documents such as corporate bylaws or shareholder agreements.

Common restriction terms for share transfers in private corporations include preemtion rights and director restrictions. Rights for preemtion usually include a right of first refusal to the current shareholders of the corporation. This means that any shareholder looking to sell their shares must notify and offer their shares to other shareholders within the corporation first. Directors restrictions give a director of the corporation the right to refuse a transfer of shares outright. You may also have to check if proposed transfers will need to be approved by the board or the shareholders. All constraints relating to stock transfers should be included in the shareholders agreement or corporate bylaws.

It’s important to keep in mind that there may be tax implications for your share transfers. Whether you are selling shares or transferring them as a gift, you may be subject to taxes. If your transaction resulted in a profit, you may owe the government capital gains tax. And if your share transaction had a capital loss, you may be able to use the loss to reduce your income for the year or carry the loss to the next year and offset capital gains. It is recommended to discuss this with a CPA along with your corporate attorney.

Once the seller and buyer agree to share transfer terms, they can initiate the transfer with a share purchase agreement. The board of directors is normally obligated to grant and record the transfer or notify the buyer of the refusal and the reasons for their refusal.  If approved, the buyer and seller of the shares can proceed with the transaction. In some situations, the transaction can be simplified to the delivery of the executed stock transfer form for the buyer’s payment of the purchase price. The corporation will then issue share certificates to the buyer, or new shareholder. The corporate bylaws should have stock transfer procedures stipulating how to facilitate the transfer of stock.

Each state has different laws regarding what requirements are to be included in bylaws, so it is always recommended to consult with a Nevada corporate lawyer when preparing this important document for your Nevada corporation. If you are uncertain how to structure your corporate bylaws, and experienced attorney can provide recommendations for your specific needs and situation.

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