Home – New Forums Money matters Forcing out a shareholder

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  • #1235409
    SydneyInStyle
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    Hi all.
    Just chasing some feedback please on a hypothetical.

    A business has has 6 shareholders.
    A disagreement falls between the major and a minor ( say 60% holder , and 10% holder )

    The 10% holder will sell their shares back to the others for $1mil ( portion of business as valued by accountant )

    Other share holders disagree, want to screw the minor, and offer $50k.

    The major share holder says along the lines ‘ we will make our business worth zero and you’ll get nothing, and just run the business from a different entity ‘

    Is there anything that stops this from happening ?

    It’s kind of like a phoenix business without the debt attachment …

    Thanks 🙂

    #1235429
    Paul – FS Concierge
    Keymaster
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    Hi And Welcome to Flying Solo. It is great to have you!

    Thank you for joining our community and posting.

    Wow, that is some hubris.

    Some very specific legal advice should be sought to see if a new entity that continued with the same customers, suppliers etc would be considered, regarding the circumstances as fruit of the poisoned tree.

    A Founders or Shareholders Agreement can solve many of these issues and may be partially or fully relied on in court – there are lots of factors.

    Again, this is why very solid legal advice is important.

    Cheers
    ~Paul

    #1235713
    James Millar
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    It’s very hard for majority shareholders to force out or mistreat minority shareholders. The corporations act contains provisions dealing with the oppression of minority shareholders and it can be quite effective to prevent such behaviour (it was designed for this exact scenario). Not to mention that some of those major shareholders are invariably also directors and they would be in breach of their duties under corporations act to act in the best interests of all shareholders and also in breach of their duty not to divert business opportunities to other companies (and potentially theft of IP if they misappropriate any knowledge gained during course operation of the business in company one). Any major shareholder that does this is likely to face a world of problems under legal dispute.

    Helping build better businesses and better lives with expert financial and taxation advice. info@360partners.com.au www.360partners.com.au 03 9005 4900
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