How to remove shareholders from a company

You many remember the case from a couple of years back where individuals who were linked to a $2.8 billion money laundering probe in Singapore were removed from their director and shareholder positions across several companies.

Whilst removing directors who run into trouble with the law is nothing new, the removal of shareholders, is a less common occurrence. This is because there aren't many ways in which shareholders of a company can be removed.

As a lawyer specializing in shareholder disputes, I am often asked how to handle the removal of shareholders. Although it is not easy, the following are a few ways of removing shareholders from a company.

1️⃣ Rely on clauses in a shareholders' agreement

Often, shareholders' agreements contain clauses that outline the mechanisms for the removal of shareholders.

Examples of situations that trigger these mechanisms are if a shareholder has gone into liquidation or bankruptcy, or if there is deadlock between different groups of shareholders.

2️⃣ Negotiate a sale of shares

If there is no shareholders' agreement or if no mechanisms for removal of shareholders is triggered, it is still possible to remove a shareholder by buying them out.

3️⃣ Commence legal action

If a majority shareholders' actions are oppressive against the minority shareholders to the extent that court intervention is warranted, legal action might result in a forced buyout of shares.

As you might have guessed, methods 2 and 3 do not always guarantee success. This is one reason for always having a well-drafted shareholders' agreement in place. It can make your life a lot easier if you need to remove a shareholder.