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Thread: Forfeiting shares

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    Forfeiting shares

    Hi,
    I need some advice. I am a share holder of a business. The business needs to be re-capitalised. If one other shareholder cannot raise the capital, what happens to his shares. Are they in this instance forfeited?

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    Site Caretaker Dave A's Avatar
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    You might have to pay attention to provisions in your founding documents or partnership agreements, but typically if it's a company, you should have a reserve of shares held by the company which you can sell to raise capital. This share offer would normally be offered to existing shareholders first. Any untaken portion could then be offered on the open market.

    The tricky part is determining the value of the shares. Your auditor should be able to advise.

    This obviously can result in a shift of % of holdings in the company, but certainly there is no question of a share forfeit.

    Obviously with a closed corporation the situation is a little different.
    The trouble with opportunity is it normally comes dressed up as work.

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    Quote Originally Posted by Dave A View Post
    This obviously can result in a shift of % of holdings in the company, but certainly there is no question of a share forfeit.
    I'm experiencing similar problem at the moment but there were no talks about re-capitalising. Members in closed corporation want to forfeit my artistic share in the company.

    Quote Originally Posted by Dave A View Post
    Obviously with a closed corporation the situation is a little different.
    "a little different"? You mean the only difference is the shares that are not available to the public, but still there is no question of a share forfeit?
    Last edited by anakin; 18-Mar-09 at 09:48 AM.

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    Thanks for the advice so far....let me clarify in a little more detail. I am the shareholder who cannot capitalise the business. I am leaving the business and
    selling my shares back to my partners (or rather giving them first right of refusal), however they are claiming that the business or themselves has no cash to buy back any shares.
    The other 2 shareholders have agreed that the business needs to be recapitalised to go forward and hence my concern is that they will use this as an excuse not to pay me anything. The business made a small profit of R 1,500,000 this financial and according to the shareholders agreement the valuation would be a factor of 3. My shareholding is 35% of the business.
    The recapitalisation requirements would be R 300,000 from myself (based on my shareholding). My initial thoughts are that the recapitalisation requirements would be subtracted from the share value (i.e a dilution of shares and hence value).
    Or is this immaterial what they as shareholders want to do following my departure (recapitalisation). Does the discussion around what they are willing to pay for my shares center around the present and hence current valuation of shares.
    Hope this all makes sense. I have a sneaky suspicion that this is a ploy to rid me of the business at a zero cost to them. We are a services organisation and hence it's very easy to delay contracts etc a show a need for recapitalisation when in fact there really isn't.
    To sell the shares on the open market would be very difficult due to the nature of the business - consulting.

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    Site Caretaker Dave A's Avatar
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    Quote Originally Posted by Odion View Post
    I am leaving the business
    That complicates the recapitalisation issue, unless that is why you are leaving?
    Quote Originally Posted by Odion View Post
    To sell the shares on the open market would be very difficult due to the nature of the business - consulting.
    You never know until you try. You might be surprised.
    The trouble with opportunity is it normally comes dressed up as work.

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