The relationship with your business partners is extremely important. If a minority shareholder is being difficult, it can be detrimental to your business.

So what can you do if a shareholder is not cooperating?

There are several different options available:

Speak to the minority shareholder

This may seem obvious, but it is often a step that is overlooked.

Sometimes a minority shareholder is difficult simply because there are miscommunications. If possible, try to speak to the minority shareholder one on one, and try and understand where he or she is coming from. It may be possible to resolve the problem without having to take any further steps or speak with a lawyer.

Remove the minority shareholder as a director

If the minority shareholder is also a director in the company, and is being difficult by not fulfilling his or her duties as a director, the company can have the director removed. How this can be done depends on your company constitution and shareholders agreement. Speak with your business lawyer for advice on this.

Purchase the minority shareholder’s shares

Where you are unable to resolve problems with a shareholder, you may wish to simply remove him or her from the company. You can do so by purchasing his or her shares.

Some company constitutions require a special majority or unanimous resolution to transfer shares, or for the company to buy back the shares of a particular shareholder. If this is the case, you will need to have the relevant board or general meeting to pass such a resolution. Again, consult your business lawyer to determine the best court of action.

Leave the company

If you have attempted all the above options, and you still cannot resolve your dispute, then it may be an idea for you to leave the company. If the company is relatively small, and does not own any important branding or intellectual property, it may be best for you to simply sell your shares, and set up again on your own.

However, you must keep in mind that if you have an employment contract with the company, or if you entered into a shareholders agreement, there may be some non-compete/restraint of trade provisions, which prevent you from competing for a certain time period within a certain geographical area. Seek legal advice from your business lawyer as to any restraint provisions that you should be aware of.

Wind up the company

Generally, this is used as a last resort. If a minority shareholder is causing a problem and is seriously affecting the operation of the business, you may wish to apply to ASIC for a voluntary wind up of the company.

To wind up a company, the directors are required to make a written declaration that the company is solvent, the shareholders need to pass a special resolution agreeing to the wind up, and then a liquidator should be appointed to liquidate the company.

You should note that, throughout the entire winding up process, you are required to lodge various forms with ASIC, to ensure that ASIC is kept up to date throughout the process.

Conclusion

If you have a minority shareholder who is causing you problems and not allowing you to operate your business as effectively as you’d like, you should consult with an experienced business lawyer as soon as possible. A good business lawyer will be able to review your legal documents and guide you through the process of negotiating and dealing with a problematic shareholder.

 

Priscilla Ng

Next Steps

If you would like further information on any of the topics mentioned in this article, please get in touch using the form on this page.