What is transacted? Shares of company!
When the owners or shareholders of the company sell shares or securities through share sale purchase agreement between themselves or between third parties, these transactions are called share sale-purchase transactions. The money exchanged in this transactions does not accrue to the company’s account but goes to the personal account of the shareholder. In the manner the shares are exchanged, the other capital instruments of a company also can be exchanged between the members of the company or third parties. When the shares are transferred from one person to another or to another company insubstantial chunk, the proportionate financial benefits and the control of the company passes on to that party. Again, note that this doesn’t result in raising funds for the company for any company purpose as the money doesn’t come to the company.
If the shares of the company are bought by another company from the existing shareholders more than 51%, then the company continues its legal existence but it is called the subsidiary of the the acquiring company. If the shares are bought by individuals or entities that also own other companies, then the company is said to have become the associate company of the group.
One also should note that, typically, in the private limited companies the transfer of shares in this fashion is not permitted by default; and the approval of the board has to be obtained or the articles of association have to be amended.
When are shares transferred? When the shareholders want liquidity for personal purposes or want to invest in some other opportunities, they will transfer their shares.
The shares of a private limited company, or an unlisted public limited company the most illiquid asset. They are more illiquid than even real estate! Apohan carries out the following work:
Determination of holding to be sold
Identification of buyer
Share sale purchase contract