The company can add or remove shareholders at any time. The Registrar Of Companies (ROC) must be notified and the company’s share register should be updated. Updating websites is something that can be done at any time. Removing shareholders is not an easy task. Use the guide below.
An agreement with investors:
- Shareholder agreements outline the rules and responsibilities of shareholders in every organization. Shareholders are fairly represented by these agreements.
- They may also describe how shareholders may be removed from the organization. This contract can be used by a company when it wishes to cut ties with one of its shareholders.
- When the shareholder agreement explicitly outlines their conduct rules, even the majority shareholder can be removed.
- The shareholder can still be removed regardless of whether he/she owns more than 50% of the company.
- The shareholders agreement should be carefully drafted so that legal issues can be taken into account. If necessary, a lawyer should be consulted.
What to do:
Unless the agreement contains a removal clause, you may need legal assistance.
A professional can provide an objective and negotiable perspective. They make sure you adhere to local and state laws.
It varies from state to state how shareholders can be removed. Contact an attorney for advice.
Getting rid of a shareholder
- Company bylaws or shareholder agreements must have been violated for shareholders to be involuntarily removed.
- After that, the Board of Directors (BOD) must approve the removal. Shareholders must also be named specifically.
- Getting rid of a shareholder or breaking the corporate statute must be clearly outlined in the resolution. You can also seek a buyout.
- There must be two signatures on the resolution.
- A majority vote is required. The corporate secretary must then sign it once more.
- Even if a shareholder did not violate company rules, they could still be removed. Removal requires a majority of 75% of shareholders to vote.
- Company shares cannot be owned by more than 25% of shareholders.
Suppose a shareholder is removed from the board. What happens next?
A non-compete agreement is needed if you decide to remove the shareholder from the company. There will be a period of time during which you are prohibited from directly competing with the departing shareholder.
Can a shareholder be cut off?
In the event that nothing works out in your favor, you will have to negotiate with the shareholder a fair price. Upon reaching an agreement, the shares can be bought back and distributed to all shareholders.