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Want to remove a shareholder? Here are three options.

A situation may arise when it is best to remove a shareholder that is causing discord within the organization. Shareholder removal is not an easy process. It is wise to read the following before seriously considering this form of action.

Shareholder removal: First things first

Before taking any steps, it is important to review the shareholder agreement if there is one. This contract may clearly outline rights and obligations of the shareholders who a parties to it, including a procedure and terms to guide the removal of a shareholder.

Shareholder agreement lacking: Additional options

Options remain if there is no shareholder agreement, the shareholder agreement is unclear or it fails to address removal of a shareholder. Examples include:

  • Negotiate. In some cases, a negotiation with the shareholder over the price and terms to purchase the shares is the effective.
  • Vote. It may be possible to remove the shareholder through a vote. If voted out, the shareholder is likely entitled to compensation for the shares but may lose all other rights associated with the shares.
  • Bring Legal Action. If the shareholder's actions are particularly egregious or disruptive, it may be possible to resolve the matter through a lawsuit.

It is wise to seek professional counsel before moving forward with any removal process. Issues can arise that are much costlier to address if not considered and addressed prior to beginning the removal process. An attorney experienced with shareholder agreements and shareholder removal can provide guidance.

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