Can my corporation restrict the shareholders’ right to sell their shares to whomever they please? | Incorporation Attorneys (2024)

Shareholders in corporations generally have the right to transfer their shares to whomever they please. But your corporation can validly curtail that right by including a provision in the corporation’s articles of incorporation or bylaws placing reasonable restrictions on the shareholders’ right to transfer their shares. See Cal. Corp. Code §§ 204(b), 212(b)(1). Such a restriction is common in closely held corporations, in which the shareholders often wish to have some say in who becomes a shareholder after the corporation is formed. The restriction is usually put into practice through a right of first refusal, which requires a shareholder wishing to sell his or her shares to first offer them to existing shareholders or the corporation before being permitted to sell them to an outsider, if the corporation and the other shareholders refuse to buy the shares. If you want to so restrict the transfer of shares in your corporation, it would be wise to include in the bylaws a workable provision for determining the price at which the shares must be offered to the existing shareholders and the corporation before they can be sold to a third party.