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When a shareholder becomes the dominant owner of a code company, this can trigger what is called a ‘compulsory acquisition of shares.’ In this event, the shareholder can acquire all of the remaining shares in a company and become the sole shareholder. Being a dominant shareholder means having control of 90% or more of the company’s shares. This article will outline the types and procedures of a compulsory acquisition and the legal documents surrounding the process. 

Way to Gain Control of a Code Company

There are two ways in which a shareholder can gain control of a code company. These are:

  • acquisition through a take-over offer; or
  • a compulsory acquisition of shares where the acquirer holds 90% of the shares.

An alternative option is a scheme of arrangement. This procedure allows a person to acquire control of a code company with the approval of shareholders and the Court. Generally, this is referred to as a ‘friendly takeover.’ However, if you are considering this option, note that the Companies Act governs a scheme of arrangement.

Take-Over Offer

A takeover bid is when an offeror makes an offer to acquire all the shares of the shareholders in your code company. An offeror is an individual or a company who offers to buy all the shares of your company. Furthermore, the Takeovers Code governs the offer. 

Shareholders can accept or reject the offer. Likewise, if they accept, the offeror will acquire the shareholder’s shares and pay them the offer price. 

Importantly, the offeror must send out a takeover notice that details their intention to make an offer and the terms on which they are prepared to make an offer. Additionally, when making the offer, they must send a document to the company shareholders stating:

  • information about the offeror;
  • statement of offeror’s intentions;
  • details relating to the financing of the offer;
  • terms of the offer;
  • prescribed disclosures; and
  • any other material that could influence the shareholder’s decision.

Next, your code company must respond to the offer document through a target company statement. This document contains the target directors’ recommendation on accepting or rejecting the offer. You must also attach a full independent adviser’s report on the merits of the offer. Alternatively, you might include a summary of that report with a full copy to shareholders on request. 

Target shareholders who want to accept the offer will then lodge an acceptance form. Following this, if the offer is successful, they will receive the offer price. 

A successful offer can manifest in many ways. For example, the offeror may make the offer conditional on receiving 50% acceptance.

As soon as an offeror obtains 90% control over the company through a takeover bid, a compulsory acquisition can take place.

Compulsory Acquisitions

Dominant Ownership Notice

A dominant owner is a person or persons collaborating who holds 90% or more of the voting rights in a company. A compulsory acquisition will apply when the 90% threshold is met. Once the dominant ownership has been reached, the dominant owner must:

  • require outstanding security holders to sell their securities to the dominant owner; or
  • provide outstanding security holders with the right to require the dominant owner to purchase their security holdings entirely.

Additionally, the dominant owner must send out a dominant ownership notice. This is a written notification saying that they are now the dominant owner to:

  • all outstanding security holders;
  • the code company;
  • the Takeovers Panel; and
  • the licensed market operator (if applicable).

Compulsory Acquisition Notice

The dominant owner must also send out a compulsory acquisition notice to notify certain people that they have acquired the company. Such people include:

  • outstanding security holders;
  • Registrar of Companies;
  • the code company;
  • the Takeovers Panel; and
  • licensed market operator (if applicable).

Likewise, they must send the notice within 20 working days of becoming the dominant owner.

Further, the compulsory acquisition notice must state:

  • that the dominant owner holds or controls 90% or more of the voting rights in the company;
  • whether they will acquire outstanding securities or grant security holders the right to sell securities to the dominant owner;
  • the rights of the outstanding security holders and if they have the right to challenge any considerations;
  • date they sent the acquisition notice to outstanding security holders;
  • the instrument of transfer for the outstanding securities; and
  • the return address for the instrument of transfer.

How a Compulsory Acquisition May Affect Other Shareholders

To ensure success, you will need to ensure the terms of the acquisition are fair and reasonable. For instance, some shareholders whose shares are being compulsorily acquired may object to the price they are being paid. In case of an objection, an approved independent expert determines the price.

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Key Takeaways

In conclusion, acquisition of shares in a code company can happen through a takeover offer. Compulsory acquisition of shares in a code company occurs when a person holds 90% or more of the shares or voting rights. Furthermore, if they acquire all shares, the offeror will have full ownership of the code company. Additionally, on reaching 90% ownership, you become a dominant owner. Likewise, you must send a dominant ownership notice and a compulsory acquisition notice. Indeed, there are certain parties you must send this notice to, including all other shareholders.

If you have any questions surrounding the compulsory acquisition of shares, contact our experienced corporate lawyers who can help you as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers who can answer your questions and draft and review your documents. Call us today on 0800 005 570 or visit our membership page.

Frequently Asked Questions

How can I compulsorily acquire shares in a company?

You can compulsorily acquire shares in a company once you own 90% or more of the shares or voting rights in the code company.

What does a dominant owner mean?

A dominant owner holds or controls 90% or more of the company’s voting rights. This allows them to compulsorily acquire all the shares in the company, so they take full ownership.

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