Kent Cars Ltd Essay Example | Topics and Well Written Essays - 2500 words

Kent Cars Ltd - Essay Example At the outset, a shareholder of a private limited company may find himself helpless and locked into the company. Under this scenario, a shareholder who is unable to exert control within the company becomes vulnerable. By taking advantage of his weak position, the controllers of the company at the expense of the non-controlling shareholder, may wield enormous power and authority in administering the company. (Vries 2010:1). The Articles of Association of a private limited company will always consist of some restrictions on transfer of shares. Normally, provisions in the Articles or Table A empower the directors of a company some limited rights to turn down transfer of shares in case of partly paid-up shares. As in the case of fully paid-up shares, such a restriction will be of technical nature only. As the operation and the management of the majority of small companies is wholly reliance on the prolonged good relations between the members of the company to such a magnitude that such c ompanies are frequently no more than partnerships but disguised with a corporate form. Hence, it is significant for the directors or members of such companies to place severe restrictions upon the transfer of shares as it will be tantamount to change in ownership. These restrictions will generally assume the form of the granting of pre-emption rights in favour of the present members of the company which is similar to the statutory pre-emption rights applicable to allotment of shares. The general procedure for transfer of shares in a private limited company is that any member who wants to dispose off his shares should give a notice first to the company. Such Notice will automatically make the company as the member’s agent for the purpose of first offering of shares to the present or existing members of the company in the ratio to their present shareholding. This connotes, by the proposed transfer of shares, the equilibrium or balance between the existing members of the company is protected, presuming that the members in question will have the opportunity to source the needed capital to acquire such shares offered. The following points should be kept in mind in case of transfer of shares of private limited companies; Great care should be given to make sure that the needed procedure is carefully adhered to in case of a transfer and if transfer of shares are expected or if the directors of a company receive notice from a member of his intention to transfer of shares and in such event, immediate reference is to be made to the conditions provided in the â€Å"AOA† † (Articles of Association of the company)†. The most common source of the tussle between the member who wishes to dispose off his share and the other members or directors of the company pertains to valuation of shares. Normally, the Articles of Association will contain a provision that in such scenario, the valuation of shares shall have to be made either by an independent expert or by the statutory auditor of the company where it is provided so and in cases where parties could arrive at a fair price or valuation. If the offered