Permitted Transfer
A Permitted Transfer is a transfer that an agreement expressly allows despite a broader restriction on selling, assigning or otherwise disposing of covered securities or ownership interests.
How it works
Stockholders Agreements, lock-ups and other ownership contracts often begin with a general Transfer Restriction and then carve out Permitted Transfers. Common examples include transfers to affiliates, family members, estate-planning vehicles, charitable organizations, other members of the same investment fund structure or transfers by operation of law. Conditions can require advance notice, continued application of restrictions and a written joinder by the transferee.
The permission is an exception to a broader rule
The governing agreement first restricts transfers and then identifies categories that can proceed without the ordinary approval or sale process.
Affiliate and estate-planning transfers are common
Permitted categories frequently include controlled affiliates, family trusts, heirs and other closely related transferees.
Restrictions often follow the securities
The transferee may be required to accept the same lock-up, voting, transfer or governance obligations that applied to the original holder.
A joinder can be required
The transfer may not qualify unless the recipient signs an agreement becoming bound by the relevant contractual provisions.
Worked example: affiliate transfer
A sponsor moves 5 million shares from one fund vehicle to another fund under common control. If the agreement expressly permits affiliate transfers and the recipient executes the required joinder, the transfer can qualify.
Why the carve-out matters
Without Permitted Transfers, ordinary fund reorganizations, estate planning or internal ownership changes could trigger restrictions intended mainly for third-party sales.
Common mistakes
Assuming a permitted transfer removes all restrictions; ignoring joinder requirements; treating every affiliate as automatically eligible; and overlooking securities-law resale limitations.
Example
A fund is prohibited from selling post-emergence shares during a restricted period but may transfer them to an affiliated investment vehicle if the affiliate signs a joinder and remains bound by the same Stockholders Agreement.
Example
A fund is prohibited from selling post-emergence shares during a restricted period but may transfer them to an affiliated investment vehicle if the affiliate signs a joinder and remains bound by the same Stockholders Agreement.
Professional note
“Permitted” does not mean unrestricted. The transfer can still be subject to securities laws, beneficial-ownership limits, notice requirements, legends and continuing contractual obligations.
Related terms
- Lock-Up Agreement
A lock-up agreement restricts specified shareholders from selling shares for a stated period after an IPO or other transaction.
- Stockholders Agreement
A Stockholders Agreement is a contract among stockholders, or among stockholders and the company, that governs specified ownership, voting, governance, transfer, consent or exit rights relating to the company’s shares.
- Right of First Refusal
A Right of First Refusal is a contractual transfer right that generally gives its holder an opportunity to purchase specified securities or property on the terms of a proposed third-party transaction before the owner can complete that sale.
- Right of First Offer
A Right of First Offer is a contractual right that generally requires an owner or issuer to give the right holder the first opportunity to make or receive an offer for specified securities, assets or a transaction before dealing freely with third parties.
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