If you want to remove a shareholder, you first must decide if the shareholder is leaving the company voluntarily or involuntarily. For involuntary removals, the shareholder will usually need to have violated the shareholders agreement or company bylaws before they can be forced out of the company.
In general, shareholders can only be forced to give up or sell shares if the articles of association or some contractual agreement include this requirement. In practice, private companies often have suitable articles or contracts so that the remaining owner-managers retain control if an individual leaves the company.
If you cannot resolve the disagreement with your minority shareholder, you may wish to remove them from the company. Unless there are specific rights to do so in your company’s shareholders agreement or constitution, you cannot simply take a shareholder’s shares from them.
There is no provision under the Companies Act, 2013 under which a member can be expelled by the board of directors or the management.
Shareholders who do not have control of the business can usually be fired by the controlling owners. … Although an at-will employee can basically be fired for any reason so long as it is not an illegal reason, having cause to fire a shareholder often helps solidify the business’ legal position.
Can the majority shareholder be removed? According to Lankford Law Firm, although it may be somewhat difficult, removing a majority shareholder is possible – for instance, if they have violated the original terms of the shareholders’ agreement of the company’s bylaws.
The answer is usually no, but there are vital exceptions.
Shareholders have an ownership interest in the company whose stock they own, and companies can’t generally take away that ownership. … The two most common are when a company gets acquired and when it has an agreement among shareholders calling for forced sales.
Common shareholders are granted six rights: voting power, ownership, the right to transfer ownership, dividends, the right to inspect corporate documents, and the right to sue for wrongful acts.
This scenario would involve the directors calling a general meeting, at which the majority shareholders will pass an ordinary resolution approving the director’s removal.
How To Resolve Shareholder Disputes
- Check your shareholders agreement and articles. …
- Proposing a resolution at a general meeting to redress the situation. …
- Appointing directors and other advisors. …
- Removal of a director. …
- Negotiation. …
- Employment cause of action. …
- Valuation. …
- Mediation.
When a major shareholder leaves a publicly traded company, the value of the company’s stock may fall. An investor’s departure may signal trouble to other investors, causing them to sell their shares, which could further reduce the value of the company’s stocks.
The rights of a 49 percent shareholder include firing a majority partner through litigation. Another option to terminate a business partnership with a majority partner is to negotiate a buyout.
There are several methods for reducing a minority shareholder’s value in the company, including:
- Encouraging or forcing a share buyout at a discount price;
- Diluting the holder’s stock shares;
- Restricting the shareholder’s access to corporate records, financial information, or key business records;