Permitted Transferee
A Permitted Transferee is a person or entity eligible under an agreement to receive securities or ownership interests through a Permitted Transfer without triggering the agreement’s ordinary transfer restrictions.
How it works
The definition is transaction-specific. A Permitted Transferee can include affiliates, controlled funds, family members, trusts, heirs, charitable organizations or other designated recipients. Many agreements require the recipient to sign a joinder or otherwise agree that the transferred securities remain subject to the same transfer, voting or governance obligations. A recipient outside the defined category is not converted into a Permitted Transferee merely because the seller prefers the transfer.
Eligibility comes from the governing document
The agreement defines the people and entities that can receive covered securities through the carve-out.
Affiliation alone may not be enough
Some agreements require control relationships, specific family connections or particular investment-fund structures.
The recipient can inherit contractual burdens
Transfer restrictions, voting commitments, lock-ups and other obligations can continue after the Permitted Transfer.
Successive transfers may also be regulated
Some agreements let a Permitted Transferee transfer again only to another qualifying Permitted Transferee.
Worked example: fund restructuring
A private fund distributes shares pro rata to its partners. If the agreement lists partners receiving a pro rata distribution as Permitted Transferees, the transfer can proceed subject to any required joinders.
Why the definition affects liquidity
A narrow definition limits the holder’s ability to reorganize ownership without triggering broader consent, ROFR or lock-up provisions.
Common mistakes
Treating any related entity as permitted; assuming the recipient receives unrestricted shares; overlooking repeat-transfer restrictions; and ignoring the requirement to become a party to the agreement.
Example
A stockholder transfers shares to a family trust that falls within the agreement’s Permitted Transferee definition. The trust signs the required joinder and becomes bound by the same transfer restrictions affecting the shares.
Example
A stockholder transfers shares to a family trust that falls within the agreement’s Permitted Transferee definition. The trust signs the required joinder and becomes bound by the same transfer restrictions affecting the shares.
Professional note
Check both the recipient definition and the conditions to the transfer. A theoretically eligible affiliate can fail to qualify if required notice, joinder or ownership conditions are not satisfied.
Related terms
- Insider Ownership
Insider ownership generally describes shares beneficially owned by officers, directors and other insiders or affiliated holders.
- 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.
- 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.
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