To legally remove a shareholder, first review the corporation's shareholders' agreement and bylaws, as these often outline procedures for removal. If no specific terms exist, consider negotiating a buyout with the shareholder or, if necessary, seeking legal action, ensuring compliance with state laws.
Forced buyout of a shareholder
It's possible through a buy-sell agreement, cross-option agreement, share buyback, or other valid contract. These provisions trigger in certain circumstances, such as when a shareholder dies, files for bankruptcy or divorces. Mergers and acquisitions can also be triggers.
This can be for a number of reasons, and it is legally possible to force an involuntary removal depending on whether there is or is not a shareholders' agreement binding all those who hold shares to certain measures of conduct.
No owner can be fired or demoted without good cause. Outlining the responsibilities of both parties. The majority can't sell the business unless it's to the minority shareholder.
If your shareholder refuses to sell despite having the right, your company can use a power of attorney. Directors can enforce a sale, following specific powers outlined in the shareholders agreement or ESOP rules.
Submit a resolution for the buyout of the shareholder for presentation to either the board of directors or at the next shareholder's meeting, depending on your shareholder agreement. The resolution need not be formatted in any specific manner; it just has to make the request for the buyout and be signed by you.
To remove a director,, according to s168 of the Companies Act 2006 requires an ordinary resolution, which needs 51% or more of shareholders to agree. However, although not easy, there are ways to resolve the dead lock.
The usual method of involuntary removal is a vote by the other members followed by a buyout based on the departing member's interest or share in the company. Member buyouts may be addressed in a buy-sell agreement or another internal governing document.
According to FindLaw, if the majority partner is not fulfilling his duties according to the agreement, you can file a lawsuit seeking to remove the majority partner from the business. Some common reasons to file a lawsuit against a partner include a breach of contract, breach of fiduciary duty and conflict of interest.
A Resolution to Remove a Shareholder is also known as a Director's Resolution or a Resolution to remove a shareholder from the register. A Director's Resolution to Remove a Shareholder from the Register must include: Details of the meeting where the decision to remove a Shareholder was made.
Common Examples of Shareholder Oppression
Draining company profits through inflated salaries and bonuses to the majority, leaving little or nothing to distribute in dividends. Locking a minority shareholder out of company property. Cutting a minority shareholder out of management decisions.
While some shareholders have voting rights, allowing them to make some company decisions, such as electing board members, they are now allowed to participate in every facet of a company. Shareholders are not allowed to participate in the day-to-day management of a company.
No specific statutory provision under the model articles can force shareholders to sell their company shares. However, certain circumstances may result in the removal of the shareholder. Forcing a shareholder out of the company can be tricky, but you can achieve this in several ways.
Misconduct: Shareholders can be removed for engaging in fraudulent activities, misusing company assets, or harming the company's reputation. Failure to meet obligations: Not meeting financial obligations, such as non-payment for shares issued and failure to meet cash calls can be grounds for removal.
Through a buy-sell agreement, it is possible for the majority to compel minority shareholders to sell their shares. This commonly occurs in cases of company-wide buyouts where there is a need for a forced buyout of all or certain shares held by minority shareholders.
Closely Held Company Majority Shareholder Rights
Manage operations - The majority owners have the right to set operational policies and make day-to-day management decisions. Declare distributions - Majority shareholders generally have the power to declare shareholder dividends and distributions.