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As mentioned in last month's International Financial Law Review (see page 56) a parliamentary committee has suggested a wide-ranging reform of the Companies Act, in particular proposing rules allowing companies to repurchase their own shares.

Another feature of general interest in the proposal refers to rules on the transferability of shares. Under the Companies Act, shares are freely transferable, with one exception: a company can, in its articles of association, include a provision on the right of preemption. A share purchaser is thereby under obligation to offer the shares he has acquired to the shareholders of the company. These are then entitled to purchase the shares, generally at a price equal to the price paid by the purchaser offering the shares. The shares offered are generally split among the shareholders opting for preemption in proportion to their previous shareholdings.

In shareholder agreements between shareholders of tightly held companies, the preemption clause in the articles of association is often reinforced by a right of first refusal, whereby a shareholder wishing to sell shares is under an obligation to offer the shares to his or her fellow shareholders before selling them.

The committee now proposes that a right of first refusal be optionally included in the articles of association. In respect of private companies, the committee has gone a step further and has proposed that clauses making the sale of shares subject to shareholder consent be allowed in the articles of association.

The new rules, if implemented, would come into force on January 1 1999.

Lars Fredborg

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