SHARE TRANSFER RESTRICTIONS IN CLOSELY HELD CORPORATIONS: SHAREHOLDERS‘ PROTECTION AND EXIT STRATEGIES

Share transfer restrictions represent a typical characteristic of closely held corporations and family businesses. Default provisions of Slovak law on share transfer in limited liability companies creates a broad scope for drafting individual types of restrictions in a most creative variety of manners. When opting for a specific share transfer restriction, shareholders should not only focus on the primary interest of maintaining a stable personal structure of the company with a view of protecting the business from the entry of unwanted third parties, but also take into account potential exit scenarios which – in closely held corporations – often are the only possibility to resolve an ongoing conflict of interests between the shareholders. Therefore, when forming a company, the author assumes it is important to carefully and precisely draft the selected type of share transfer restriction in the corporate contract or shareholders’ agreement to properly resolve potential conflicts among shareholders and allow smoothly exit of affected party. Also, shareholders should not neglect to consider the occurrence of situations when statutory restrictions affect the share transfer, and vice versa, when a stipulated share transfer restriction may be unlawful or unenforceable.