How do I remove a minority shareholder?

How do I remove a minority shareholder?

A shareholder – minority or majority – can choose to leave a business whenever they like. They may want to leave for several reasons, for example, wanting to re-invest their money elsewhere or wanting to use the money for personal reasons.

However, there may times where you may want or need to remove a shareholder without them leaving on their own accord. As a majority shareholder, you don’t generally have the right to force a minority shareholder to sell their shares, and any transfer will be subject to negotiation with the existing shareholder.

In this Ask the Expert piece, we list the rights of a minority shareholder and the steps needed to remove a minority shareholder from a business.

The rights of the minority shareholder

A minority shareholder may be able to have an effect on certain steps of the process, depending on their shareholding level. Minority shareholders that hold over 25% of voting shares can block special resolutions of the company from passing, and a shareholder that holds over 5% of the voting shares in the company can require a written resolution.

For more information, read our article on minority shareholders’ rights and protection.

Review your articles of association and shareholders’ agreement

Your first step should be to review your articles of association and shareholders’ agreement. The transfer of shares in a company will be subject to the ‘good’ or ‘bad’ leaver provisions set out in the articles of association – these often include restrictions on transfers. In the event there are no leaver provisions, you should check whether there is a clause which allows the majority shareholder to force the sale of minority’s shareholdings in the event of a buyout of the company.

Make changes to your articles of association

In the event of there not being any leaver provisions in the articles of association or the shareholders’ agreement – consideration can be given to updating the articles of association to include leaver provisions. With this in mind, great care and consideration must be taken to ensure that any alterations made will not oppress the minority shareholder, nor should any alterations made be unjust – this could result in the company receiving an unfair prejudice claim from the minority shareholder.

Voluntary liquidation

For shareholders that hold a majority (75%) of shareholdings of the company between and the company is solvent, then they could consider winding the company up under what’s called a voluntary liquidation – this would allow the company’s assets to be transferred into a new company for the purpose of removing the minority shareholder, meaning the minority shareholder would not receive any shares in the new company. This essentially isolates the minority shareholder and makes their shares in the old company effectively worthless – remember, this is an aggressive strategy to take, and you can run the risk of damaging the company’s commerciality and it's reputation.

The value of shares

If the situation has taken a downturn, a minority shareholder might demand a premium for their shares, that’s why it’s wise to seek advice to get a clear valuation of the shares in question – this will determine what a ‘fair value’ would be for them. In most cases, a minority shareholding will be valued as less than the shares would be worth based on a percentage of the whole. The shareholders’ agreement or the articles of association may contain a formula for the minority shareholding valuation.

Our team of corporate solicitors are more than equipped to advise companies on the steps they should take in relation to shareholder advice. We can also offer legal advice and support should a minority shareholder raise a dispute. Get in contact with our corporate solicitors today by calling 0800 689 17000 or fill our short enquiry form.

About our expert

Jas Bhogal

Jas Bhogal

Corporate Partner
Jas qualified as a solicitor in 2006. She has 12 years' experience working almost exclusively with start up companies, high growth potential SMEs, along with venture capitalists, other investment platforms and individual and corporate investors.

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