facebookHow to remove shareholder from a private company in singapore? - Seedly

Gabriel Tham

Tag Team Member at Kenichi Tag Team

24 Feb 2020

Career

How to remove shareholder from a private company in singapore?

How to remove shareholder from a private company in singapore

Discussion (4)

What are your thoughts?

Learn how to style your text

In most cases, other shareholders would have to buy you out. It is only in rare and exceptional circumstances that other shareholders can apply to the Courts to forcibly transfer your shares. Remember, shares are your property. The law treats private property ownership seriously. In Singapore, there are 3 methods to removing shareholders in Singapore.

Method 1: Forcible transfer

This is what you’re worried about. Forcible transfers can only occur if there’s been a significant breach of the terms of your Shareholder Agreement.

For instance, many Shareholder Agreements often contain a “Right of First Refusal” provision. This provision means shareholders must first offer shares for sale to fellow shareholders, before selling to outsiders. If you sell your shares to a third-party without first offering it to other shareholders, that constitutes a breach of the Agreement. The other shareholders can initiate a lawsuit against you.

In extreme cases, breaching shareholder agreements may cause the Court to compel a shareholder to transfer their shares to other parties. However, it’s reassuring to know that such forced removals of shareholders are rare. It would require a particularly egregious breach of shareholder duties.

It’s best to speak with a legal professional to see whether legal action, under your circumstances, would succeed in forcibly removing you. If there hasn’t been a severe breach of the Shareholder Agreement, then methods 2 or 3, outlined below, would be more appropriate.

Method 2: Buy-out clause

Most well-drafted Shareholder Agreements will contain some kind of buy-out clause(s). These clauses will state the manner in which you can buy other shareholders out, or be bought out yourself.

Some common buy-out clauses include:

a. Russian Roulette Clause:

This clause is frequently used to break deadlocks in companies where two shareholders (or groups of shareholders) cannot come to an agreement. Here’s how a Russian Roulette Clause works:

  1. Party A can offer to buy out Party B’s shares, at price “X”.

  2. If Party B rejects the share acquisition offer, Party B must buy Party A’s shares, at price “X”.

  3. This guarantees either Party A or B full control of the company, if the clause is activated.

Executing the Russian Roulette clause involves lots of psychology and planning. If the person making the acquisition offer sets the price too high, then they would have to buy the other party out at a very expensive price. If they set the price too low, then the other party could simply swallow their shares up at a discount. This encourages a balancing act when making the acquisition offer, and naturally helps both parties arrive at a price that is mutually beneficial.

Russian Roulette clauses allow for the removal of a shareholder in a quick and (arguably) cost-effective manner.

b. Drag-Along Clause:

This allows a majority shareholder to force a minority shareholder to sell their shares when the entire company is being sold.

If you are minority shareholder, the majority shareholder who “drags along” the minority must offer you the same price and purchase terms as other shareholders. You cannot be offered a lower price or more disadvantageous terms just because you’re in the minority. This protects your shareholder’s rights and ensures you get your money’s worth when the whole firm is acquired by someone else.

Method 3: Direct buy-out offer

If you don’t have buy-out clauses in your Shareholder Agreement, then the other parties will have to make you a direct offer to purchase your shares. Try to have civil negotiations and see what a reasonable purchase price would be. If tensions are high between yourself and the other shareholders, you can consider engaging an independent third-party to mediate your discussions.

To learn more about this topic, read this guide on the 3 legal methods to removing shareholders in Singapore.

PenguinSpace.co

22 Feb 2020

Rent an Office Space & EARN CASHBACK! at PenguinSpace.co

You need to notify ACRA within 14 days once the director resigns. But your company should have at least one director left.

ACRA can be notified through Bizfile under the Change in Company Information including Appointment/Cessation of Company Officers/Auditors link ( www.bizfile.gov.sg File eServices Local Company Make Changes Change in Company Information including Appointment/Cessation of Company Officers/Auditors )
Thank you for viewing my answer. Hope it helped!


Boon Ming

07 Feb 2020

Engineering at Nanyang Technological University

This is an interesting piece of article.

[https://www.quora.com/Im-a-shareholder-and-foun......

Write your thoughts