Forcing a Director to Resign and sell his stock
It is critical to have a good reputation. What can you do when a director who is also a shareholder puts the firm and its employees into disrepute or otherwise acts in a way that harms the company? What are your choices if you are a director who is dissatisfied with the strategic direction that other directors have chosen or do not want to be linked with any potential legal concerns that may arise?
A director is frequently a stockholder. If a director shareholder does not sell voluntarily, the firm will have to find a mechanism to acquire the shares compulsorily i.e by forcing a Director to Resign, presuming they can obtain sufficient shareholder approval.
Can a director be removed by the board of directors?
In most cases, the answer is yes. The first step is to review your company’s articles of incorporation and any shareholder agreements. If they do not make particular provisions (in the case of company articles, this would imply that standard table an articles have been altered), company law also contains a method that we discuss on our page regarding director removals.
A director may be convinced to quit as well.
What if a director refuses to sell their shares?
The beginning point is always whether the firm has updated its articles of organization and/or has a shareholder agreement that anticipates scenarios in which the company may desire to not only dismiss the director but also ensure that the director has no shares. There are challenges and issues in the absence of such provisions.
Examine the company’s articles of incorporation and any shareholder agreements. Is there anything in the law that requires shares to be transferred in the event of a specific event? It is important to note that typical articles will not assist you.
Common changes to normal articles and conditions in a shareholder agreement, for example, will force a shareholder to transfer shareholdings in a company if the company has been dragged into disrepute or the shareholder is now being investigated for criminal activity. These provisions may be of benefit to the other shareholders.
Unless there is a contractual commitment entitling them to do so, a shareholder cannot normally force another shareholder to sell their shares. For example, if the company’s Articles of Association, Shareholder Agreement, or similar lawful document have a provision allowing such a transaction.
Generally, negotiating with the shareholder whose shares you want to purchase is a more successful approach of obtaining shares. A share sale can be accomplished through a share transfer agreement, in which the shareholders acquire the shares of the other shareholders, or through a business buy-back, in which the shares are returned to the firm.
What choices are available if a leaving director agrees to sell shares?
There are numerous ways to buy the shares from the undesired director with consent. The director should not resign until the shares are agreed upon. Aside from the business power gained by remaining a director, there may also tax benefits.
If the leaving director wishes to sell shares, the following options are available:
- Transfer the shares to current shareholders – this option may be undesirable if it means that shareholder control swings in unexpected directions;
- The company buys back the shares and cancels them – this option ensures that shareholder control remains in place. Depending on the circumstances, there are several approaches to a corporate buy back that can result in a tax-efficient position for the director. If the firm wants to buy back the shares from the undesired director but does not have enough funds to pay for the shares all at once, share buy backs might be structured in phases.
- Establishing an employee benefit trust – financed by the employer to purchase the shares and hold them for the benefit of other employees; Buying back the shares and keeping them in treasury until a buyer is found;
- Restructure – Using existing shares, the company could be restructured and divided into new groups. Some reorganizations are tax-neutral, and HMRC will grant permission.
Section 38 of the Companies Act of 1994 states that
One can transfer or sell shares at his or her discretion.
- First, the transferer or transferee must submit an application.
- Second, it must be duly stamped, executed, and presented to the transferee together with the corporation.
- Third, the corporation will send a notice of refusal to both parties within one month of receiving the share transfer documentation.
However, if the shareholders who want the sale to proceed have a majority shareholding, they may consider proposing a special resolution at the annual general meeting to amend the company’s Articles of Association to include clauses requiring the sale of the shares. This is a sale at fair value, and there is usually a calculation inside the Articles of Association to define how the valuation should be computed.
Another method is to use shareholder agreements. Though this form of arrangement is uncommon in public organizations, it is essential in privately held businesses. This is because minority shareholders can generate significant issues in a small-business context, particularly when they seek to sell or transfer their shares to third-party buyers.
Making a Shareholder Sell His Stock
Generally, a shareholders’ agreement can define certain conditions under which one shareholder must sell shares to fellow owners or back to the corporation to prevent against potentially chaotic scenarios. For example, some corporations grant the company the right of first refusal to purchase shares that descend to an heir upon the death of a shareholder.
Other agreements can compel a sale based on different criteria. The amount of compensation that the selling shareholders will receive for their shares is frequently specified in the agreement. In some situations, the money received by the selling shareholders will not necessarily reflect the current fair value of the shares, but will reflect a formula agreed upon by all owners when they signed the agreement.
However, these agreements may jeopardize the interests of minority shareholders. Thus, the statute provides a mechanism for minority shareholders who are compelled and unlawfully pressured to sell their shares or face invisible damages to their interests. As a result, a minority shareholder has the ability to file a lawsuit alleging “unfair prejudice.” A minority shareholder’s unfair prejudice petition is normally made against the other shareholders personally, and they must usually defend such a lawsuit with their own funds.
However, because the alterations to the Articles of Association were considered by a court to have been made in good faith and in the best interests of the firm, the court did not find that the amendments were unfairly adverse to a minority shareholder. However, if the motivation for modifying the Articles is unlawful and not in the best interests of the firm, the minority shareholder will almost certainly be able to oppose the modification. Even though the modification harms or is intended to harm a minority shareholder, it may still be acceptable if made in good faith and in the best interests of the firm.
The laws are put in place to protect the rights of both parties including forcing a Director to Resign, but it changes according on the situation to assure the best interests of those who are most affected. The Bangladesh Companies Act 1994, the Bangladesh Securities and Exchange Ordinance 1969 (together with the Bangladesh Securities and Exchange Commission Act 1993 and the rules made thereunder), and the rules of the Dhaka Stock Exchange (DSE) and the Chittagong Stock Exchange (CSE), as well as the Company’s Articles of Association, govern most company matters.