A question yesterday, Can a company refuse to sell stock?, had asked about if a company could prevent sale of its stock to certain parties. The accepted answer was that, no, a company can't put restrictions on its stock because shareholders already own it, not the company.

Is there a situation in which a company could control its stock through contractual agreement? Two cases:

  1. The company is still privately held. It agrees to sell its stock to third parties under the condition that those buyers agree to terms and conditions regarding how they are allowed to trade that stock. These terms and conditions include that new buyers also have to agree to the same terms and conditions.

  2. A company is already public, but its shareholders unanimously agree (crazy, right?) to enter into an arrangement in which they must each trade their stock according to some protocol, e.g. say as approved by a majority vote of the then-current owners.

Naively, it seems that both of these arrangements are simple contractual agreements. But, it seems plausible that such arrangements might be barred by regulation.

So, in the US for publicly traded companies, can a company control its stock through contracts with stockholders? Or are such arragements prohibited by regulation?

  • 2
    Certainly (1) is quite common. Right of First Refusal, Buy-Sell agreements, etc., are very common with privately held companies. (2)... not sure. I don't imagine a ROFR or similar would be allowed for a publicly traded company in the US, but they're certainly extant in other countries...
    – Joe
    Jan 31, 2017 at 17:51
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    Pretty much by definition, a company that is "publicly traded" is one that doesn't restrict how the stock is traded. You list on a stock exchange, you must follow the exchange's rules, and generally that's almost totally open access. So for case (2) you of course have to de-list and although I don't know the details, I suspect also the SEC or equivalent regulatory body declares you now to be a privately-held company. But I'm not sure whether this is an answer to the intended question, or just a quibble over the use of "publicly traded" to describe companies that do what you describe :-) Feb 1, 2017 at 15:14
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    I wonder if a poison pill provision would be legal ["If XYZ individual buys more than 2% of our stock, everyone else gets a right to buy 2% at a discount"]...
    – Joe
    Feb 1, 2017 at 17:25

1 Answer 1


Your first scenario, involving shareholders in a private corp being limited by a contractual agreement, is common in practice. Frequent clauses include methods of valuing the shares if someone wants to sell, first right of refusal [you have to attempt to sell to the other shareholders, before you can sell to a 3rd party], and many others. These clauses are governed by contract law [ie: some clauses may be illegal in contract law, and therefore couldn't be applied here].

A Universal Shareholders' Agreement is just the same as the above, but applied to more people. You would never get an already public company to convert to a universal shareholders' agreement - because even 1 share voting 'no' would block it [due to corporate law limiting the power of a corporation from abusing minority shareholder value]. In practice, these agreements universally exist at the start of incorporation, or at least at the first moment shares become available. An example is the Canadian mega-construction company PCL*, which is employee-owned. When the original owner transferred the corporation to his employees, there was a USA in place which still today governs how the corporation operates.

In theory you could have a 'public company' where most shares are already owned by the founders, and 100% of remaining shares are owned by a specific group of individuals, in which case you may be able to get a USA signed. But it wouldn't really happen in practice.

*[Note that while PCL is broadly owned by a large group of employees, it is not a 'public company' because any random schmuck can't simply buy a share on the Toronto Stock Exchange. I assume most exchanges would prevent corporations from being listed if they had ownership restrictions like this].

  • I think you're probably at least broadly correct, but I didn't write nearly the same answer because I thought this question deserved one with citations in actual regulations/law. I don't find an answer like this quite as convincing (particularly as the publicly traded bit is effectively ignored). I do think the exchanges (and the US SEC) might well have specific rules prohibiting or at least limiting these sorts of things.
    – Joe
    Jan 31, 2017 at 21:28
  • @Joe I agree, although on another reading of the question, it seems that the post is really 3 different but related questions: (1) Can a corporation control its shares by contract? (2) Can a private/public corporation control how its stock is sold? (3) Can a specifically US-based public corp control its stock? I guess I've more answered 1 & 2, where the bolded question at the bottom is question 3. Jan 31, 2017 at 21:33
  • Yeah, the question is a bit confusing. I read it as (3) being the ultimate question (since it's bolded), and 1/2 being more like "information" leading to why OP is asking it. But it definitely could be worded much better to clarify that.
    – Joe
    Jan 31, 2017 at 21:37

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