Generally, a shareholder may not be involuntarily removed unless there is an agreement, such as a shareholders agreement, that sets out a process for doing so.
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.
If the shareholder is to be removed involuntarily, he must have violated the company by-laws or the shareholder's agreement. A resolution for the removal has to be then drafted and presented to the Board of Directors (BODs). It must also be presented to a specific set of shareholders if the agreement mentions so.
Majority shareholders can legally force minority shareholders to sell stock under drag-along clauses, buyout provisions, and court orders. Minority shareholders are often compelled to sell shares in corporate takeovers and mergers when acquirers anticipate 100% equity ownership.
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.
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.
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.
Whatever the reason is for their removal, the shares they held must be dealt with and cannot be left un-allocated. When the shares are given up by the shareholder, they will need to be transferred to someone else; this can be done through sale or through gifting.
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.
Shares of a corporation held by shareholders who do not hold enough shares for their votes to affect company decisions, in contrast to shares held by interested shareholders, who hold significant percentages of company stock.
When one partner owns 51% or more, they are known as a majority owner. Anyone who owns 49% or less is a minority owner. On a day-to-day basis, this may not make much difference. Both people own the business and benefit from the revenue that it generates.
In most cases, no partner can make significant decisions without consulting the other, unless the partnership agreement provides legal grounds for doing so. A well-drafted partnership agreement should outline the roles and responsibilities of each partner, including how decisions should be made.
A deadlock occurs when shareholders of a corporation or parties to an agreement have an irreconcilable conflict. This term is often used in connection with 50:50 companies where neither shareholder has a majority interest, and a conflict arises over the management of the corporation.
So if the 50/50 shareholder you want to remove is also a director, which is commonly the case, you won't have the power to remove them per se. The first remedy you may try is to pass a Special Resolution to amend the Articles to allow you to remove your fellow director.
Shareholder agreements can provide specific grounds for “firing a shareholder”, meaning, the right of the company or other shareholders to purchase the shares held by a shareholder who violates specific provisions of the shareholder agreement.
First, the shareholder must have violated either the shareholders' agreement or the bylaws (or both), and a resolution for removal has to be drawn up and presented to the Board of Directors. The cause for the removal must be stated, and a buy-out request to gain back the shares can also be included.