The shareholder's approval is crucial for initiating any change in a company. Do all shareholders have to agree to sell a company? do they have the right to interfere in every decision of the company? learn more about the same.
If you are an individual rights of shareholders, then you are bound to the articles of incorporation. Based on the experience of Vakilsearch’s experts we have summarised some of the most common consequences of having to rely on standard articles of incorporation as a shareholder and some problems faced when there is no shareholder agreement. Let’s know If all the Shareholders have to agree to sell a company in this article.
Do All Shareholders Have to Agree to Sell a Company?
As per the experts of Vakilsearch, if you can attain or control 75% of your voting rights, you can alter the articles of incorporation to solve many problems. But, this power is not provided to the minority shareholders. So when it comes to approval from the shareholders to sell the company these below-mentioned aspects are expected to occur.
- The majority shareholders mostly enjoy more rights in the company. All the startup companies that have been registered provide the details for resolving the conflicts in their authorised articles
- If the majority votes to sell, the minority gets to come along and include their investments
- The minority can not be left-back and they get the same deal as the majority
- The minority can not quit the contract
- In most cases, a company does not need a disappointed minority as it may affect its growth. In such a scenario it is best to buy out the minority
- The same responsibility is on the firm if its shareholders begin selling their holdings
- Rights of Shareholders auctioning shares will have no immediate impact on the firm as it will just simply be substitution between one shareholder and another
- If many shareholders are selling their shares, there may be no buyers and the percentage rate falls which is not good for the company.
Apart from this, there are different scenarios and rights that every common shareholder must know.
Right to Vote, Influence Management, and Buy a New Share
The right to vote is one of the most important rights a common shareholder holds. Major shifts within a publicly-traded company will be voted on before changes can be implemented. So here you can express your opinion in the annual general meetings without any hesitation.
Shareholders have the right to question the company management and make a change in it by selecting the company’s board of directors. Common rights of shareholders also have access to buy a specific number of shares before the stock is offered to the potential shareholders.
All the above-mentioned rights will be clearly described in the shareholder’s agreement. Our experts at Vakilsearch always recommend having a shareholders agreement. From experience, If a shareholder’s agreement is not properly drafted it may result in multiple problems.
Problems That May Occur if There Is No Shareholder Agreement
Shareholders Who Leave the Company Can Tend to Retain Shares
In most companies, the employees are awarded shares in the form of incentives. However, if an employee or director leaves the company, ownership of those shares will be retained.
From an economical aspect, this may not be desirable as it dilutes the interests of those who stay. The shareholder’s agreement may deal with this aptly. Very often, if requested by a director, the person will be expected to sell all the shares while resigning.
Retired Shareholders May Set Up a Competitor’s Businesses
Without the protection of the agreement with the rights of shareholders, each shareholder can easily acquire customers and trade on their own account. However, this is prevented by including restriction clauses in the existing shareholder’s document. Non-competition clauses are best reserved for shareholder agreements to increase enforceability.
All Shareholders Have the Right to Equal Treatment
In standard articles, there is only one stock share, which gives equal rights to income, voting, and capital. Different stock units permit different shareholders to pay various dividends and grant different voting and capital rights. This occurs when different shareholders contribute different percentages of capital to the company. As a result, based on their investment the dividend share also alters.
Deadlocks Can Occur if Shareholders Disagree
Conflicts trigger a predetermined buyout mechanism. That is, one buys the other’s stock at a given price. Unresolved disputes lead to liquidation of the company and consequent loss of goodwill. Adding a simple dispute resolution clause to the shareholder agreement will resolve the deadlock. For example, one can specify: Disputes will be referred to an outside expert or arbitrator. This to a greater extent will resolve the dispute.
Solution-Implement a Shareholder Agreement
Companies with two or more right of shareholders must enter into a shareholder agreement. Shareholders’ agreement supports the articles of incorporation. Define shareholder responsibilities and support the smooth operation of the company.
Is It Possible to Remove the Majority Shareholder From the Board of Directors?
If a majority shareholder is elected to the company’s board of directors, it can be very difficult to dismiss that person, as they have the power to vote against dismissing themselves. However, if the director violates the company’s rules or other legal requirements, he may be dismissed. The only other option is to acquire the dominant position of the shareholders and vote to remove them.
How Can Vakilsearch Help You in Drafting a Shareholder’s Agreement?
As you can see, having a shareholders agreement is of paramount importance. It may reduce conflicts and improve the smooth functioning of the company. Vakilsearch can help in drafting the perfect shareholder’s agreement for your company. This can help you to govern the shareholder rights and obligations, transfer of shares, and how the companies are going to run under different considerations.
With our team of attorneys, we draft the shareholder’s document and update it for you within 4 days. You can reach back to us in case of any revisions.
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