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Removing a minority shareholder from your closely held corporation

by | Jun 15, 2021 | Shareholder Representation & Litigation

For whatever reason, you’ve decided that a certain minority shareholder in your company has got to go. Whether they are acting disruptively, harassing you with improper requests for dividend issuance or otherwise interfering with your ability to run the company, you want a way to make them sell their shares to you or to someone else. How can you legally go about doing that?

Triggering a buy-out

If the troublesome minority shareholder is also an employee of the company, you might have an easy way to force them to sell. Read your corporation’s articles of incorporation and by-laws carefully. Many corporations include in these documents a provision known as a buyout agreement.

Often, a buyout agreement lays out specific events that can trigger an automatic buyout of a shareholder’s interest in the company. If loss of employment with the company is listed as one of these triggering events, then terminating that shareholder’s employment would effectively force them to sell their shares back to the company at a pre-determined rate.

Even if your by-laws do not contain such a prevision, you can always amend them. If you do, make sure that you follow the proper procedure laid out in your articles of incorporation so that you do not open yourself up to a potential lawsuit.

Enticing them to sell

If forcing a buy-out of their shares does not seem feasible, there are ways of making the option of selling preferrable to retaining their shares. You can entice them to sell with whatever terms you want – but beware of improperly pressuring them to the point where you give them an opportunity to sue you.

For example, if you withhold profits, information or rights that the by-laws of the company entitle them to, the minority shareholder could have grounds for a costly lawsuit. Don’t do anything that would constitute a squeeze-out or that could be construed as a breach of your fiduciary duties.

Dealing with obstinate or obstructionist minority shareholder can be a real headache for any executive. With careful strategy, you can hopefully find a way to get them to sell without opening yourself up to liability.