Part 1: What happens when a shareholder leaves a company?

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Table of Contents

• Will the company cease to operate?
• What are the administrative and company secretarial requirements when a shareholder wants to leave?
• Conclusion

If you own a business with other shareholders, where multiple parties are involved, it is best to be prepared for a situation where one or more shareholders want to leave the business. This is a 3 part series on what to consider when a shareholder leaves. Article 2 will discuss the sale of shares agreement. Article 3 will consider protecting confidential information, intellectual property and imposing a non-compete clause.

Will the company cease to operate?

For proprietary (private) companies, business members are shareholders. As a company is a separate legal entity, if a shareholder wants to leave the business, the company can still continue operations, as long as the company has at least one shareholder and one Australian director.

What are the administrative and company secretarial requirements when a shareholder wants to leave?

There are certain administrative requirements involved if a shareholder would like to leave. These include:

• The company must approve the sale in accordance with the relevant document. This may be a Shareholders Agreement if the company has one, or a Constitution if the company has one, or the Corporations Act replaceable rules;
• The shareholder must sell their shares in accordance with the relevant document. This may include offering their shares to all other shareholders, pro-rata in accordance with their shareholdings;
• If the existing shareholders do not wish to purchase the shares, the shareholder may be able to sell to a third party. This may require approval of the company or the other shareholders;
• The company must update the company share register;
• The company must cancel the previous share certificate; and
• The company must notify the Australian Securities and Investment Commission (ASIC) of any changes to the shareholder composition of the company.

Conclusion

At LegalVision we have specialist commercial lawyers who can assist you to draft a sale and purchase of shares agreement to negotiate the terms to protect your business, and to look after the administrative and company secretarial requirements to comply with the law.

LegalVision has high-quality experienced business lawyers. Please call our office on 1300 544 755. We will happily provide you with a fixed-fee quote and an obligation-free consultation.