Under regular circumstances, the removal of a shareholder without consent is not a permissible course of action. There are rights in place protecting their position from removal and ensuring that the expulsion isn’t based on unfounded claims.
The process of removing a shareholder can be complicated, the terms allowing this removal will often be outlined in the Shareholder’s Agreement. The procedure of removal must also align with certain provisions under the company’s Articles of Association to ensure that the course of action taken is lawful. One of the provisions making the removal possible is a ‘compulsory transfer’ clause or a ‘forced buy out’, in which the shareholder is obliged to sell their shares under specific, predetermined conditions such as a breach of duties. However, in the circumstance that no shareholder agreement nor suitable provisions under the Articles of Association are in place, the process becomes increasingly challenging with separate legal procedures needing to be followed.
Certain acts of misconduct may diminish the right to hold a position as a shareholder. Such acts range from fraud, failure to meet financial obligations, and disputes with the company on the shareholders behalf. These are circumstances in which a shareholder may be lawfully discharged from their responsibilities and position without needing to obtain any form of consent. Another method of removing a shareholder without consent includes a vote by the other shareholders within the company. In such circumstances, it is critical that the individual receives ample notice.
The Unfair Prejudice Petition is a legal mechanism under the Companies Act 2006, which seeks to protect minority shareholders within a business. The purpose of this mechanism is to ensure the lawful treatment of smaller shareholders who may hold less influence than their larger counterparts. This can be used to the marginalised shareholders advantage as it ensures that decisions being made by the company also considers their position and how the outcome will impact all members. This means that in the case of prejudiced affairs where the minority suffers, including the unlawful expulsion, there are provisions in place to protect these shareholders. Having this in place to protect smaller shareholders is crucial since holding less than 50% of shares means that you would be considered the minority.
