MBE Rules · Business Associations
Sale of Control
Sale of control (premium)
The rule
A controlling shareholder may generally sell at a premium, but is liable for looting when circumstances gave notice of the buyer's intent, for sale of corporate office, or where the premium reflects diverted corporate opportunity.
In plain English
A controlling shareholder can sell their shares for a higher price due to their control over the company. However, they may be held liable for looting if they knew the buyer intended to misuse the company, if they sold their position in the company itself, or if the premium they received was based on opportunities that should have benefited the corporation instead.
Worked example
A controlling shareholder sells their shares to a competitor for a significant premium, knowing that the competitor plans to cut jobs and divert company resources. The sale is scrutinized, and the court finds the shareholder liable for looting because they were aware of the buyer's intentions. The outcome is that the shareholder must return the premium received.
Memory hook
Control comes with a price; misuse it, and you pay the price.
The trap
Exams may present scenarios where the intent of the buyer is ambiguous, leading students to misinterpret the controlling shareholder's liability.
How examiners test it
Questions often involve fact patterns where a controlling shareholder sells to a buyer with questionable intentions, testing the candidate's understanding of the nuances of looting liability.
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