A non-controlling shareholder is being a real nuisance. You’ve explained to him or her that, as president, your obligation is only to do your best to manage the company; be loyal to the company and to your shareholders; to hold an annual meeting and to grant occasional access to the corporate books and records. You’ve been unable to get him or her to stop asking questions, questioning your decisions, offering suggestions, calling and dropping by. Your only real option is to buy him or her out.
Do you have a buy-sell agreement? Buy-sell rights or provisions in your bylaws (C-corp and S-corp) or operating agreement (LLC)? Buy-sell provisions in a stockholders’ agreement (C-corp and S-corp) and member agreement (LLC)?
If you don’t, you have almost no ability to force him or her to sell. You must entice him or her. The tough part is agreeing on price and terms. You might try some of the methods used successfully in buy-sell agreements. For example, if the shareholder is willing to buy you out, consider a take-or-pay agreement. You flip a coin to select who names the per-share price. Once the price is named, the other person gets to either buy or sell at that price. If he or she is just a seller, than see if that person will agree to deciding fair market value by both of you selecting one appraiser who appraises the business. Then, the two appraisers agree on a third appraiser who reviews the two appraisals and pegs the value.
Finally, is the shareholder disrupting the business? Requiring the company to squander resources, such as labor, because of his or her actions? Harming the reputation of the company? Owners of closely held businesses have a duty of loyalty as well. Talk to an attorney skilled in private-company shareholder actions.
The following attorneys contributed their expertise to this article:
William O’Connor of Norman, Wohlgemuth, Chandler & Dowdell, P.C.
Robert R. Peters of Jones, Gotcher & Bogan, P.C.
This article originally appeared in The Business Owner Journal, the periodical of choice for owners of small and midsize private businesses. All rights reserved, D.L. Perkins LLC. © 2012.
This publication is intended to provide general information on the subject matters covered. It is sold and distributed with the understanding that neither the publisher nor any distributor or advertiser is engaged in providing legal, tax, insurance, investment or other professional advice. The advice of a qualified professional should be sought before any reader applies a concept presented herein to his or her particular situation or business.
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