Insights Into How Our Legal System Works

Insights Into How Our Legal System Works

The Role Of A Contract When Forcing Out A Minority Shareholder

by Yolanda Lane

If you are a majority shareholder, you will have a greater level of power over your company. However, a minority shareholder may behave in a manner that is disruptive within your company and you may wish to force them out. In this case, a written agreement is very important.

Options Available in a Written Agreement

Like with any other relationship, a group of shareholders can find themselves in a disagreement. When this occurs, you may be able to manage the situation with a written agreement. There are several options that can be included such as:

  • Call rights
  • Rights of first refusal
  • Transfer restrictions
  • Put rights
  • Voting
  • Special quorum

When creating written agreements, you'll always want to speak with corporate law services. If you do not have a written agreement in place, you'll need to negotiate with the minority shareholder. You will want to make an offer that is reasonable to the shareholder in this case or they may refuse to agree to sell the shares.

Incentivizing a Minority Shareholder

If you don't have a contract and you're struggling to remove a minority shareholder, you may offer incentives. You do not want to punish the shareholder because this is considered minority shareholder oppression. However, you can take steps to prevent the investor from having decision-making power so that they are more willing to sell the shares after losing this advantage.

Benefits of a Contract

If you have a contract in place, you can have an agreement that allows you to determine the conditions for when a minority shareholder can be forced out without the hassle of providing incentives and pressuring the shareholder. A corporate lawyer service can review the specifics of the contract so that it will help you achieve your goals.

Amending a Contract

When you already have an agreement, there are ways you may be able to amend the agreement so you can have the shareholder forced out. For example, you might make a change to an agreement that allows for a minority shareholder to be forced out if they made a false or material misrepresentation.

However, if you will be making changes to the agreement, you will want to make sure to have the agreement viewed by corporate law services. They may be able to come up with additional strategies that you can use to force out a minority shareholder and will also represent you if any of these measures are challenged in court.

For more information, contact a corporate law service today.


About Me

Insights Into How Our Legal System Works

Hello, I'm Christina Miller. Have you ever been fascinated with why the law works the way it does? Ever since I was in junior high, I had an intense interest in anything related to our legal system, whether it be a crime drama on television, a judge show or a legal case covered on the news. I followed it all. As time progressed, I began learning about how the actual legal system worked and not just the fictionalized version of our legal system. This has lead me to start writing my own blog posts about law that I hope will help others.