ArticlesRestricted Shares

On the occasion of our previous article regarding the transfer of shares, we approached the particularly important principle of their free transfer (art. 41 §1 Law 4548/2018). A principle that does not apply, however, in the case of two categories of shares: (a) that of the reserved shares (art. 43) and (b) those for which there is an option to transfer or acquire them (art. 44). In the present article we will be concerned with the first ones.


Concept & Purpose of Issuance of Restricted Shares


According to the law (: art. 43 law 4548/2018) restricted shares exist when statutory restrictions are placed on their transfer inter vivos, which ceases, for this reason, to be free. Transfers, which take place in violation of the relevant statutory prohibitions, are void (art. 43 §2 in fine ).

The articles of association may allow the issuance of restricted shares, the transfer of which depends on the approval (of the Board of Directors or the General Assembly) of the SA ( art . 43 §1). Furthermore, the articles of association must define the procedure, the conditions and the deadline, within which the SA approves the transfer or nominates a buyer. If, however, the specified deadline elapses, the transfer of the shares is free.

The articles of association may define the reasons for which the competent body is allowed to refuse the approval of the respective transfer of the restricted shares. In the absence of a relevant provision, the competent body acts at its own discretion. In any case, however, the discretion cannot be exercised by abuse of right ( art . 281 Civil Code).

Purpose of Publication

Through the issuance of restricted shares, the share balance of the SA is maintained. And so does the prevention of the entry into the SA, as shareholders, of unwanted third parties ( incl .: competitors or insolvent persons).

The control of the entry of new shareholders is of particular importance and value in the cases of family SAs and SAs with only a few shareholders. Maintaining their character and equity balances is, in the vast majority of cases, a vital feature for their continued operation.

The reserved shares are therefore used to serve the (corporate) interest of the SA on the one hand and the interest of the majority shareholders on the other – in particular, those who exercise (directly or indirectly) its management.


Establishment & Termination of Transfer Commitments

The issuance of restricted shares presupposes, as mentioned above, a relevant statutory provision ( art . 43 §1, section a΄). The relevant clause may have been established by the articles of association. The provision can bind the shares issued at the establishment of the SA but also those (or only those) that will result from future increases in its share capital.

It is, however, possible to establish this specific clause in a subsequent amendment to the statute. In the latter case, an increased quorum and majority of the General Assembly is required, which will take the relevant decision ( art . 130 §3 and 132 §2). The minority shareholders will be entitled, in this case, to request the redemption of their shares by the SA ( art . 45 §2, para. b’).

The articles of association may allow, simply, the issuance of restricted shares. The decision to issue them or not will then rest with the body that will be entitled to take the relevant decision.

It is also possible to abolish any statutory regulation regarding the restriction of shares. It is assumed that the time for which the commitment was intended has expired. Alternatively: decision of the General Assembly on the relevant statutory amendment, which is taken with an increased quorum and majority. In case of cancellation of the restriction, the principle of free transfer of the shares shall apply again.


Transfer Restrictions

As a basic limitation of the free transfer of shares, according to the aforementioned, the provision of approval by the competent body (: General Assembly or Board of Directors) is provided for. It is, however, possible to establish further statutory restrictions ( art . 43 §2). The relevant reference in the law is specified as indicative. However, it is important to note that (despite the poor wording of the law), the restrictions imposed are not allowed to make the transfer impossible. The limitations listed in §2 are the following:

Right of Preemption

The potential restrictions on the transfer of shares include: “…a) the impermissibility of the transfer, if the shares are not previously offered to the other shareholders or to some of them” (art. 43 §2, par. a’).

Based on the specific legislative regulation, the articles of association may establish, as a limitation, a right of preference in favor of the existing shareholders or some of them (right of first refusal). The shareholder who intends to transfer the shares is obliged, in this case, to first offer their shares to the already existing (or to specific) shareholders of the SA.

The respective statutory regulation is the one that will determine the content of the preemptive right as well as the procedure for exercising it (e.g. method of notifying the transferor, response deadline of existing shareholders).

The specific preemptive right should not be confused with the preemptive right in the share capital increase of the SA. The right of preference, in the latter case, consists of a right of the existing shareholders for preferential/original acquisition of newly issued shares – in the context of an increase in the SA’s share capital.

Indication Of The Acquirer From SA

Another restriction that can be set by the articles of association is the “…indication, on behalf of the company, of a shareholder or a third party who will acquire the shares, if the shareholder wishes to transfer them” (art. 43 §2, par. b).

The shareholder who wishes to transfer their shares communicates, in this specific context, their relative wish to the SA and/or the terms of transfer offered by a third party. The SA, in this case, can indicate another person, to whom, only, the shareholder is obliged to transfer their shares.

This specific restriction differs from the corresponding right of pre-emption as a person designated by the SA may be a third party to it, not just an existing shareholder. Also, in this particular case, the SA maintains a more active role, as it, through its competent bodies, is the one that indicates the specific shareholder, who will acquire the shares available for sale.

Tag Along Right

As a potential restriction, the condition according to which “…in order to approve the transfer of shares to a third party, the third party will undertake to acquire shares of other shareholders, which will be offered under the same conditions as the transfer is approved, or different conditions, according to the provisions of the statute” (art . 43 §2, para. c΄).

In this case, it is a right to co-transfer shares of the other shareholders who have not negotiated with the third party who wishes to acquire SA shares. This right is also called the tag along right. It aims to facilitate the exit of the minority, whose rights it ensures. Through this, any minority is protected in case it does not wish to be trapped in the SA with an unknown/unacceptable majority shareholder.

Drag Along Right

Finally, as a limitation, the condition under which “…in the event of a transfer of shares from a shareholder to a third party, the other shareholders will also be obliged to transfer the corresponding percentage of shares to the third party, in accordance with the provisions of the articles of association” (art. 43 §2 d’).

This specific provision establishes the drag along right. It refers to the case of an offer to buy all the shares or the majority package from a third party. If, in this case, the shareholders of a specific majority agree to the purchase (of the entire SA) from the third party, the other shareholders are obliged to (co)transfer to the latter their own shares as well. In fact, under the same terms and conditions that the majority agreed to.

This particular right serves the majority. Also, the completion of the purchase by the third party, who reasonably may not want the existence of a minority in the SA.


Obligation to Redeem Restricted Shares

The law establishes the possibility of foreseeing the obligation of the SA to redeem the reserved shares. In particular: “…the articles of association may provide that … if the company refuses to approve the transfer of shares or does not respond to the shareholder within the period provided for by the articles of association, it is obliged upon the request of the shareholder and within… 3 months from the submission to redeem the shares…” ( art . 43§3).

Despite the poor wording of the relevant regulation, it must be accepted that the option of redemption can be provided by statute for any intended transfer restriction in which the SA is involved. Thus, the possibility of being trapped in the SA of a shareholder who wants to leave it is avoided.


Cases of Death, Confiscation, Bankruptcy, Other Collective Foreclosure Proceedings

The restrictions on the transfer of the shares do not apply, basically, in case of death, confiscation, bankruptcy or submission of the shareholder to another collective process of foreclosure of their property (art. 43 §4).

The articles of association, however, may stipulate that in specific cases the shares are purchased by a person indicated by the SA (or by those of its shareholders who will exercise a preemptive right). The price to be paid will be determined by the competent court, through the process of “ex parte” proceedings.

The specific indication, on the part of the SA, must take place within an exclusive period of one month since (the SA) was informed of any of the specific events. It must also be notified, as the case may be, to the shareholder, the heir or legatee, the creditor, the trustee or the body of the other collective process.

The relevant provision serves the corporate interest and the other shareholders. The determination of the purchase price by the competent court is certain to significantly delay the completion of the relevant procedure. It would be desirable if the relevant statutory definition of it were jurisprudentially accepted.


Restrictions on Transfer of Bonds

The restrictions on the transfer of the shares can respectively be applied in the case of the bond loan. In particular, the law provides that the relevant application of these restrictions can be a decision of the body that decides on the issuance of a bond loan with nominal, convertible or exchangeable bonds. In fact, in case of transfer of bonds in violation of the restrictions that may be decided, this is invalid ( art . 43 §5).


The issuance of restricted shares, i.e. shares for which statutory restrictions are placed on their transfer, is related to the preservation of shareholder balances but also, to a significant extent, to the very existence of the SA. Experience shows that their eventual non-establishment can have disastrous results for the latter. Imperative, therefore (and not only desirable) is the careful establishment of the best, in each case, restrictions. Equally important, however, is the agreement, subject to conditions, to grant an option to transfer or acquire shares not listed on a regulated market. About this, however, see our next article.-

Stavros Koumentakis
Managing Partner


P.S. A brief version of this article has been published in MAKEDONIA Newspaper (July 24th, 2022).


Disclaimer: the information provided in this article is not (and is not intended to) constitute legal advice. Legal advice can only be offered by a competent attorney and after the latter takes into consideration all the relevant to your case data that you will provide them with. See here for more details.

Stavros Koumentakis
Nikis Avenue & 1, Morgenthau st., 54622 Thessaloniki
(+30) 2310 27 80 84

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