According to the Article 8, part 3, paragraph 3 of the RA Law “On Joint Stock Companies” – A shareholder of a closed Company has a pre-emptive right to purchase shares sold by other shareholders of the Company. If, within the period stipulated by the Company’s Charter, none of the shareholders exercise their pre-emptive right, the Company is entitled to purchase these shares at a price agreed with the owner. If the Company refuses to acquire the shares or an agreement on their price is not reached, the shares may be alienated to a third party. The decision on the acquisition of shares by the Company or on the refusal of them is made by the general meeting of shareholders (hereinafter: the General Meeting) of the Company, unless otherwise provided by the Charter of the Company.
Commentary
As we can see, the 3rd paragraph of Article 8 of the RA Law “On Joint Stock Companies” does not define a special procedure for a shareholder to notify other shareholders about the sale of his shares. Moreover, the mentioned article stipulates that such a procedure is defined by the company’s charter. In other words, according to the mentioned article, it is even permissible to establish such a procedure by the company’s charter, and there are no special requirements in the law regarding the procedure for the shareholder to notify the other shareholders about the sale of his shares.
Thus, if the application of the procedure provided for in Article 48 of the same law was mandatory in connection with the notification of the sale of the shares by the shareholder to the other shareholders, then logically, in the aforementioned Article 8 of the law, the company would not be allowed to establish such a procedure in the statute, because it was already established in Article 48.
Moreover, if the company’s charter does not specify a specific procedure for the shareholder to notify the other shareholders on the issue under discussion, it means that from the point of view of the law, the important thing is to notify the other shareholders in any reasonable way (including directly addressing them in writing) about the possibility of using the pre-emptive right to purchase the shares. And if there is a written refusal directly addressed to the seller by the other shareholders (a written waiver of his pre-emptive right), it means that the requirement aimed at ensuring the exercise of the pre-emptive defined by Article 8 of the law is fully complied with.
In other words, according to Article 8 of the law, it is important to confirm that the other shareholder was aware of the sale of shares by the company’s shareholder and refused to exercise his pre-emptive right to acquire them. The notification and refusal procedure has no meaning and does not cause any legal consequences, including invalidation of the subsequent transaction.
The law does not provide a procedure for sending the shareholder’s notification about the sale of shares to other shareholders through the company. It is not at all necessary for the shareholder to notify the other shareholders about the sale of his shares through the company. There is no such requirement by law. Simply, in practice, such an order is applied in companies with a large number of shareholders. A shareholder selling his shares in such companies may not have the contacts of all shareholders to notify them, or the seller may find it more appropriate for the company to arrange to notify the other shareholders. In any case, if the company’s charter does not specify a procedure for notifying the shareholders through the company, the law does not require it.
As for the procedure defined by Article 48 of the law, that article is not applicable to the case of a shareholder notifying other shareholders about the sale of his shares.
Article 48 of the law refers to the procedure for the exercise of shareholders’ pre-emptive rights when placing new/additional shares by the company to increase its authorized capital, and this right is defined in Article 47 of the law. In other words, Article 48 directly refers to Article 47. The procedure defined by Article 48 refers exclusively to the exercise of the right defined by Article 47. And Article 47 defines the shareholder’s pre-emptive right to purchase the shares distributed by the company.
Article 35. Increase of the Charter Capital
1. A Company has the right to increase its Charter capital by increasing the nominal value of the shares or placing additional shares.
Article 48. Procedure for exercising the pre-emptive right to acquire shares and securities convertible into shares
1. Shareholders owning voting shares of a Company must – under the same procedure prescribed by this law for convening the Meeting and at least thirty days before the day when the placement of voting shares and securities convertible into voting shares payable in cash starts – be notified of their opportunity to exercise their pre-emptive right prescribed by article 47 of this law.
Article 47. Ensuring shareholder interests in the case of placement of Company sharesand securities convertible into shares
1. Shareholders of a Company shall have a pre-emptive right to acquire new shares in proportion to their shares in the Charter capital within the terms prescribed by the Charter, except for cases provided by clause 2 of this article and the Law of the Republic of Armenia on “Bankruptcy of Banks and Credit Organizations”.
Article 71. Notification on convening a Meeting
1. The persons referred to in clause 1 of article 70 of this law shall be notified of convening a Meeting by means of sending an appropriate written notice to them and, if provided by the decision on convening the Meeting, by means of public notice as well, unless the Charter provides other methods of notification.
Commentary
It should be noted that Articles 47 and 48 of the Law are contained in Chapter 4 of the Law, which is entitled: Placement of Company Shares and Other Securities.That is, this chapter, in which articles 47 and 48 are located, is about the placement of shares by the Company, and it is within its framework that the pre-emptive right of shareholders to acquire new shares to be placed by the Company is defined.
Articles 47 and 48 of the Law do not refer to the pre-emptive right to buy other shareholders in case of sale of the shares sold by the shareholder, so that the procedure defined by Article 48 is applicable (including the procedure for notifying the shareholders in the prescribed manner for convening a meeting).
Those articles refer to the preemptive right of shareholders to acquire new shares by the company and the procedure for its implementation.
Thus, since Articles 47 and 48 of the Law do not refer to the pre-emptive right of other shareholders in case of sale of the shares by the shareholder, therefore, the procedure of notifying the Company’s shareholders of the convening of the meeting as defined by Article 48, which is defined in 71 according to the article, is not applicable.
The important thing is to prove that the shareholders were notified of the sale of shares in time and that they waived their pre-emptive right to buy them.
If a shareholder gives written notice directly to the other shareholders by sending it to their addresses while sending a copy of the notice to the company or even without sending it to the company, the selling shareholder is deemed to have fulfilled his duty to notify the other shareholders.
Law of the Republic of Armenia “On the Securities Market”.
In order to separate the placement of shares from the sale of shares, it is necessary to read Article 3 of the RA Law “On the Securities Market”.
Article 3. Basic Concepts Used in the Law
According to this law:
13) Issuer means a person that issues (has ever issued) a security, or a person that makes an offer to issue a security on his behalf.
16) Issuance of Security means a set of activities carried out by a person targeting creation of a pool of the same class of securities. Issuance of securities under the same decision of the issuer, but in different periods (in series) shall be considered a single issuance.
17) Sale of Security is any compensated transaction in securities trading, exchange, etc.
18) Underwriting is the first sale of securities to the investor. Underwriting may be done by the issuer or by the investment service provider (underwriter) having the right to provide investment services in compliance with Point 1 item 6 under Article 25 of this Law. The issuer’s sale of securities acquired or repurchased by the issuer shall not be considered an underwriting.
20) Underwriter is any person who acquires securities from an issuer with a view to distribute it and/or offers, sells securities of the issuer for distribution purposes or partakes in the agreement or contract of undertaking such activity, except for the cases as defined by regulations of the Central Bank. As used in this provision, the term underwriter shall also include any person directly or indirectly controlling the issuer or controlled by the issuer, or under common control with the latter.
21) Investor is any person who owns a security or plans to acquire a security.
Conclusion
It is obvious from the content of the concepts mentioned above that the sale of his shares by the shareholder of the company does not mean the placement of the company’s shares.Placement of shares is the prerogative of the company issuing the shares. The shareholder of the company cannot place shares. The shareholder of the company can be an investor by acquiring the shares distributed by the company, using his pre-emptive right to acquire the shares distributed by the company.From the concepts mentioned above, it follows that Articles 47 and 48 of the Law “On Joint Stock Companies” are not applicable when a shareholder sells his shares, because those articles, as we have already mentioned, refer to the preemptive right of shareholders to purchase shares by the company and in the order of its implementation, and not to the sale of his shares by the shareholder.
