A Business-First Approach To The Practice Of Law

How can you legally remove a shareholder?

On Behalf of | Dec 23, 2021 | Business Law |

Your shareholders play a crucial role in the operations, finances and control of your business. Having more than one person to handle essential responsibilities can help your company grow and thrive.

However, shareholders can also cause problems, and you may need to remove them from your corporation.

Is it legal to remove a shareholder?

You have a legal contract with the other shareholders in your company. You can legally remove someone, but it is a complicated process. These situations are typically contentious, making it vital to take the correct steps to avoid violating the law.

Does your shareholder agreement specify removal procedures?

Review your agreement to understand your legal options. It provides guidelines for proper shareholder conduct and may present a clear path to remove someone. If the person in question is not a controlling shareholder, you can remove them for any violations of the agreement or your organization’s bylaws.

Can you remove a majority shareholder?

It may present more challenges, but you can remove a majority shareholder who violates any rules of conduct within the agreement. However, if the person also has an employment contract with you, you must analyze that carefully before proceeding.

What other options do you have for cutting ties with a shareholder?

If you have no legal reason for the person’s removal, you may use a buyout option. This process requires negotiating a fair price to compensate the member. A provision for a buyout clause should be in your shareholder agreement. If you cannot successfully negotiate a buyout, state laws regarding removal can help you pursue a removal.

When you need to sever a business partnership by removing a shareholder, it can result in potential lawsuits. Knowledge of your legal options helps protect your company.

Founding Partners Damaso W. Saavedra and Allyson D. Goodwin