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Which document can help me remove a shareholder?

by | Aug 29, 2022 | Business Law

Harmony among business co-owners is important. In the event conflict breaks out between shareholders, it may become necessary to part ways with the dissenting co-owner. Removing a shareholder is not always easy, though. You could end up in litigation if you do not remove a co-owner in the proper manner.

The founding documents of your business may provide you with the right way to let a shareholder go. suggests companies refer to the shareholders’ agreement for guidance.

How a shareholders’ agreement works

To set up a company that gives out ownership shares, you should establish the rights of each shareholder. Examples include describing the shareholders’ degree of control over the business and how to pay co-owners in the event of a company sale. Additionally, the agreement should dictate what shareholders must contribute to the business and other obligations. All shareholders must give their consent to the agreement.

Terms for removing a shareholder

Shareholders’ agreements bind the signatories to behave in a certain manner, plus they may prohibit specific kinds of misconduct. If your agreement describes particular rules for co-owners, you should have an easier time dismissing a shareholder if the person has violated a condition of conduct.

The agreement may include other details important to removing a shareholder, such as how to value the shares of the co-owner and ways to buy out the owner. This is important because your shareholder could feel cheated if you do not offer a proper price for his or her shares.

Negotiation may be necessary

Without a shareholders’ agreement, you may have no choice but to negotiate with the shareholder for a buyout and departure from your company. Take the time to understand your legal options in case a dispute with a co-owner heats up.