Can a Majority Shareholder Remove a Minority Shareholder?

The Most Common Options for Removing a Minority Shareholder from a Closely Held Business

can a majority shareholder remove a minority shareholder If you hold the majority of shares in a closely-held corporation or limited liability company, you can control most aspects of the business’s operations.

But minority shareholders can still act disruptively, and sometimes you want to find a way to remove them.

This article will help explain how – in general – such removals proceed.

Option 1: Buying Out a Minority Shareholder

Removing a minority shareholder will be simplest if you have a well-drafted shareholder’s agreement.

Such an agreement will usually stipulate that the majority shareholder can buy out the minority at a predetermined price, or at a price determined by a mechanism specified in the agreement.

But if you don’t have an agreement, or if your agreement doesn’t include such a buy-out clause, we’ll need to consider other options.

Lacking a prior written agreement, we’ll first attempt to negotiate a purchase of the minority shareholder’s stake. Sales of minority shares in closely-held corporations will generally be at a discount, but it’s still necessary to make a reasonable offer, or else the minority shareholder will simply refuse it.

If we can’t come to an agreement, there’s no simple way to compel the minority shareholder to sell. In general, the majority shareholder will need to address the minority’s reasons for refusing to sell, convincing the minority to accept a fair value for their shares.

If the minority shareholder were only interested in their shares’ monetary value, after all, it would generally be possible to agree on what that value was, and to buy their shares for that amount. If they refuse to sell given a fair offer, it will often be because they value something else about being a partial owner. If you remove the minority shareholder’s non-monetary reasons for retaining their shares, they may become more willing to part with them.

A quick note from attorney Robert Wood:

If you’re having a dispute with a minority shareholder at your company you may be wondering whether you are able to remove them from the business. I hope you’ll take a few minutes to reach out to me to discuss your situation. Our Firm has extensive experience handling disputes between shareholders. We are not only equipped to help resolve your dispute through mediation or arbitration, but we are also prepared to litigate your case if that’s what’s required to ensure that your interests are aggressively pursued.

Thank you for stopping by our site, and I hope to hear from you soon.

Robert Wood

Option 2: Encouraging a Minority Shareholder to Sell

When attempting to remove a minority shareholder’s incentives for retaining their shares, you need to be careful not to engage in what is known as minority shareholder oppression. If you do engage in oppression of a minority shareholder, that shareholder can pursue equitable remedies.

Generally speaking, only certain actions will quality as minority shareholder oppression. You should avoid:

The general rule is that the corporation must be operated for the financial benefit of all shareholders, not for that of the majority only.

This leaves open many actions that could succeed in encouraging the minority shareholder to accept your proposed buy-out. You could:

When a minority shareholder discovers that their shares do not entitle them to as much decision-making power as they supposed, they may become willing to sell.

Tell us about your case, and we’ll tell you how we can help

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