View Full Version : Getting rid of a shareholder in a Private Ltd Company

3rd Apr 2014, 10:53
I have some company law knowledge as a MBA but I would appreciate higher intelligence. It would be neat if His Honour Judge FL sees this.

We want to buy out (34%) a chap, who has disgraced himself, from a company (farm). There are only two other share holders both 33%. The other two forced him to resign from the board. He will not sell and we do not want to be connected with a company with this chap as a share holder. They are in financial difficulty with huge bank interests to pay each month.

I have thought of a few things including them going into receivership but this would damage the company reputation.

There must be a similar situation out there. For the record Botswana law is based on British law.

Answers on a post card please.

3rd Apr 2014, 11:03
I would suggest an accountant. I am about to do the same, although under totally different (that is to say not acrimonious and no significant money involved) but it is easy. In your case the waters are muddy (Okavango!) but an accountant may help.

3rd Apr 2014, 11:14
It never ceases to amaze me how people come to PPRuNe looking for legal advice on complex topics from a bunch of people they don't know anything about.

I suggest you get in touch with a real life lawyer. Not "getting rid" of them properly could easily come back and bite you in the backside if they subsequently come forward and catch you out on a technicality, thus reinstating themselves.

3rd Apr 2014, 11:26
Thanks Capetonian for that rapid response from down south. One of the current shareholders is an accountant! I think it needs a legal approach. AND, our water is not muddy it is crystal clear, so there :ok:

To come clean, if it helps, he is under police investigation for sexual assault and abuse of a minor (local boy). Thus our wish to have nothing to do with this with him as a shareholder and the directors wanting him out. The MD is ex-SAS so you can imagine his attitude towards this situation :eek:

Mixture, this is a professional pilot's forum. I am asking advice from my mates as I would in a pub. Lawyers don't grow on trees here. Furthermore I said that I am qualified in company law I am just asking for similar circumstances. Get off your box and back into the cabin.

3rd Apr 2014, 11:35
The other two forced him to resign from the board.How, precisely, did they do that? If they dismissed him as a Director, the next event is probably a wrongful dismissal case unless they had a very good lawyer. If they coerced him into signing a "resignation" unwillingly the possibilities open to him are endless, especially if threats of violence were involved.

By coincidence I was contemplating starting a thread on examples of bureaucratic Darwinism, having just had a most severe reprimand for not holding Board Meetings properly for the company of which I am Company Secretary. And its only Director. And its only Shareholder. I am required to produce records of the Meetings of these 3 people; I suggested signing the Minutes as "The Unholy Trinity", but the civil servants could not understand what I was laughing about.

The lesson here is that all sorts of problems can be avoided by not having other Directors or Shareholders. Our Board Meetings are models of informed, courteous debate on topical issues, and are usually held in the bath. We rarely disagree, indeed I cannot remember a case where we disagreed about anything.

3rd Apr 2014, 12:45
Capot, thank you. They invited him to resign rather than voting him out. The latter would have resulted in the reason going onto the extraordinary general meeting minutes. This would reflect badly on the company public records. I was not there but I am sure there was no violence. He wasn't an active partner and drew no salary. He was the 'duty citizen' to smooth the original land deed through whereas the rest of us are only 'residents'.

3rd Apr 2014, 16:40
I always find these things interesting, if not because the advice given is what is paid for it but because one might learn something, so thank you Exascot for posting.

You might have to be careful that you use some one you can trust absolutely to make these manoevres. I have heard of people (well only one and at third hand so not much more than a rumour, actually,) losing their property because they ditched their 'duty citizen' and therefore became an unqualified expat owner.

3rd Apr 2014, 17:30
We want to buy out Have you / the other shareholders made a reasonable offer? I'm assuming yes, and that this was refused, but you never said...

... if it helps, he is under police investigation for sexual assault and abuse of a minor... Presumed innocent until proven guilty though?

He was the 'duty citizen' to smooth the original land deed through whereas the rest of us are only 'residents'. Would the land deed still be valid without the original 'duty citizen' as a shareholder, or could he be replaced by someone else if necessary?

An interesting subject.

I don't see how you can get rid of a shareholder in a private company if he still wants to remain one. Unless there are special provisions in the company's articles of association etc. which might allow for this in some way. Presuming that the other existing / new shareholders wish to keep the company going, recapitalise etc., then perhaps there's some way to change the company's legal identity, transforming into some sort of public, instead of limited company?

Whatever, if he eventually goes to court for the suspected offence, there will be legal bills which might persuade him to reconsider another offer. And if he eventually goes to prison, the court may award damages, perhaps confiscating his shareholding to pay out to the victim? Or once in prison, find that the other shareholders award themselves huge pay-rises if salaried, reducing profits to zero. Temporarily making more working capital available through a "personal loan" from a third-party at exorbitant interest rates etc. also. Until he decides to accept almost anything for his shareholding "from behind the bars of his prison cell". How much would it cost for a "Big Black Momma" to help convince him to do so in a Botswana prison?! :O

3rd Apr 2014, 17:42
I'm as big a novice as they come... so don't look at this as advice, but rather as a question for my own curiosity's sake.

Couldn't it be possible to form a new company with just the 2 shareholders), sell all assets(incl. trademarks/intellectual property) to the new company (at reasonable 'cost') and then liquidate the first company? Be like a forced buyout, no?

3rd Apr 2014, 17:52
But usually only if all the existing shareholders agree...

3rd Apr 2014, 20:24
oh.. figured a majority could do it.

3rd Apr 2014, 21:34
I've not been round this stuff for some time, and I'm not a lawyer, but my understanding (of UK law) is that if a shareholder doesn't want to sell, it needs some clever work to force them to do so.

It was done when Santander bought Abbey National - Abbey shareholders (like me) had no choice - but I would doubt if it would be as easy in a Private Ltd Company.

Winding up the company (and forming a new one) may be the easiest way, if the setup allows a majority to opt for that. I can see a lot of potential complications.

You need a good lawyer, who knows all the ins and outs and can check your Mem and Arts and then local law to see if they make any provision for this.

3rd Apr 2014, 21:52
Wisely formed partnerships (and closely held corporations) have articles that provide for buying out a shareholder or partner.

The shotgun clause is that partner A may offer to buy out partner B for whichever amount, X, that A decides to offer.

B may either accept X or buy out A for X.

As the two of you constitute a majority, you may call a shareholder's meeting and pass whatever resolution you want subject to your articles.

Note that if a 67% majority is required, your hands are tied.

A wise lawyer would have you holding collateral mortgages on corporate assets commensurate to your investment that you could foreclose upon.

3rd Apr 2014, 22:23
It's been a while since I've seen so much ill-informed nonsense in such a short thread.

My knowledge is confined to UK company law - I have no idea how it may differ in Botswana or indeed any other country. Perhaps you could ask Mma Ramostswe? Oh no, she doesn't go to the pub, does she?

In the UK, the individual who is causing you grief would be termed an "oppressed minority" and he has strong legal protection. Short of actual bodily violence, you would resolve the matter by going to law. There is no middle way. That of course will involve money being spent, possibly much more than the matter warrants. You then have to make a pragmatic decision: offer more money or petition for a winding up. The latter will not be easy (he owns 34% of the shares and can block special resolutions) and it may not be cheap.

None of the things you have mentioned have anything to do with this person as a shareholder. And why the MD's background, military or otherwise, should be relevant is a mystery to me. Mixture & henry_crun have it right.

Get appropriate local qualified advice.

3rd Apr 2014, 22:31
It was done when Santander bought Abbey National - Abbey shareholders (like me) had no choice - but I would doubt if it would be as easy in a Private Ltd Company.

Have 90% of shares then can force others to sell at same price that was offered to other shareholders.............prevents a tiny minority holding on to shares in bad faith. I agree with this.

In relation to the deal as mentioned you pretty much in a no win situation if he refuses to sell and be careful as any action taken may be percieved as ganging up on a minority shareholder.

Liquidating the company is likely the only option to remove him.

I am assumming that given there are big bank loans that directors guarantees are involved for all.

If company is insolvent and no likelihood of it changing then a prepacked liquidation where you agree to buy the company for 1 following liquidation BUT director guarantees remain in place with the bank may be best option to keep bank with you. Bank is interested in its security and getting repaid.

This could be subject to court challenge BUT releasing errant director from guarantees where bank intends to call on it could be seen as payment for shareholding.

However it is worth ensuring that you get a couple of business valuations from reputable valuers, in event of a legal challenge if say company was worth 20k but debts were 30k then would justify actions you taken.

I would suggest getting a specialised Commercial lawyer who understands Company Law rather than a High St Soliciitor as there maybe something in the articles of association which cover this.

3rd Apr 2014, 23:32
Not related, but an anecdote about a similar problem.

In a business that I owned, I had a problem with a senior employee (a director actually) who gave me the run around, used every legal device they could think of with me charging up massive legal costs. Life became unbearable.

After nearly a year the solicitor said to me "This is going to cost you a fortune and age you, what I suggest is that you walk into her office and tell her to F off and be out of your office within the hour."

I took the plunge and took his advice, it was difficult to do but suddenly I felt years younger and overall a better person. Cost me a lot in subsequent claims from her of all the usual things, unfair dismissal, discrimination etc. but possible not more than it would have cost me anyway.

I had been so concerned about doing things 'correctly' that I forgot that it was my business not hers and ultimately I could do as I wanted.

4th Apr 2014, 11:29
Exascot, if you get in touch with the Law Society of Botswana, they should be able to advise you as to commercial lawyers you can consult. Their legal directory is available online, but doesn't indicate what specialities different firms have.

Another option would be to browse through Botswana High Court reports (link follows) and see what law companies instructed counsel in similar cases. Good luck.

Botswana: High Court (http://www.saflii.org/bw/cases/BWHC/)

Lon More
4th Apr 2014, 14:13
get a North Korean in.