Here you will learn everything about the post-transfer pre-emption clause (hembudsförbehåll, a clause in a Swedish company's articles of association): what it is, how it affects share ownership, and what its advantages and disadvantages are.
A post-transfer pre-emption clause is a legal provision that ensures shares are offered to existing shareholders, or to the company itself, before shares are sold to outside parties. The purpose of the clause is to be able to control the ownership of a particular company by keeping decision-making, or the entire ownership, within a certain circle.
The rules that determine how the clause works and is designed are set out in the articles of association, and the law that governs it is the Swedish Companies Act (aktiebolagslagen).
What are the advantages and disadvantages of a post-transfer pre-emption clause?
Below we describe the most important advantages and disadvantages of a post-transfer pre-emption clause.
Advantages
- The company is protected against hostile takeovers, as the clause ensures that the ownership structure does not undergo an unwelcome change.
- The company can think long term, as it knows it does not need to adapt to the demands of outside shareholders.
- The existing corporate culture and values can be preserved, as ownership is kept within a defined circle such as a family or an extended family.
Disadvantages
- Companies with a post-transfer pre-emption clause have limited liquidity, as the shares are harder than usual to sell. To give an example, listed companies normally have millions of interested parties, while companies with such a clause usually have only a few.
- Share transactions are usually more complicated than normal to carry out, as the clause must be taken into account.
- If several parties want to buy the shares offered by the seller, a legal dispute may arise.
What different post-transfer pre-emption clauses are there?
There are two clauses that are particularly common:
- Strict pre-emption (skärpt hembud), the most common clause, which means that existing shareholders have a pre-emption right to the shares regardless of who the new owner is.
- Family-law pre-emption (familjerättsligt hembud), a limited clause stating that existing owners have a pre-emption right if the new owner received the shares through, for example, a gift, a division of matrimonial property or an inheritance.
Here we answer frequently asked questions about post-transfer pre-emption clauses.
What happens if you sell your shares without following the clause?
Then the sale will be declared invalid.
Are oral post-transfer pre-emption clauses valid?
No, oral clauses are not valid. They must be in writing and contain information such as the price and terms of the sale.
How long do you have to use the clause?
Normally the clause can be used for about 2 months, after which the seller may dispose of her shares in the way she wishes.
Can a post-transfer pre-emption clause be changed?
Yes, the clause can be changed by amending the articles of association, which requires a resolution at the general meeting
What happens if several people want to buy the offered shares?
Most commonly, they are divided evenly between the interested buyers unless the articles of association say otherwise. It is important to have clear rules on this that everyone understands, so that disagreements do not arise.
